50/30/20

50/30/20 Budget

The 50/30/20 budget is one of the simplest yet effective strategies for adults. This rule was polarized by Senator Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan” in 2006. The 50/30/20 rule is a strategy to allocate your budget according to three categories: needs, wants, and financial goals. Its flexibility allows you to adjust each category to fit your current financial situation and goals.


Execution…

Step One: Calculate your income

The first line item in your budget is your total income (after taxes). This should include all monies earned from your employer, side hustles and any cash that is coming in. Even unexpected money that you receive throughout the month! (Don’t cheat yourself) 

Step Two: Calculate your expenses

 Categorize your monthly expenses by splitting them up into the two categories

  1. Needs: Mortgage, rent, car note, car insurance, credit card bill, utilities, childcare, gas, and other expenses that are NEEDED

  2. Wants: shopping, dining out, tv streaming packages, mini-vacation, memberships, and any expense that is not NEEDED

*Be honest in this section it is extremely important. Identify your needs and wants to help you determine what you can and cannot afford. Remember to keep your savings goal in mind. 


Lastly, perform an in-depth review of your spending habits. Review your bank and credit card statements to discover where your money is going. 

Step Three: Allocate your expenses into the three categories 

Consider these three categories as “buckets” and you’re filling them your hard-earned income. Based on the information in the 2nd step, all your money should be placed into each bucket monthly with nothing left over.

Step Four: Follow your budget: Track your progress monthly and adjust as needed. No strategy is perfect, but each strategy can be tailored to be perfect for YOU. 

In essence…

  1. Set your monthly financial goal

  2. Calculate your income

  3. Determine your expenses

    1. Separate your needs and wants

  4. Fill your “financial buckets” (needs, wants, financial goals)

  5. Check progress monthly, reward yourself for completing your goal each month