The 50/30/20 Budget
Updated on March 22, 2019
The 50/30/20 budget is a simple way to get in control of your money. This budgeting method keeps things simple by dividing your after-tax income into just three different categories: needs, wants, and savings. Every time you get paid, you will spend 50% of your money on needs, 30% on wants, and put the remaining 20% into savings.
Needs will include the things you absolutely need to survive. The top three needs for most people are housing, transportation, and food. Needs will also include unavoidable bills like water, electricity, and minimum payments on your debt.
Wants are all the things you spend your money on that aren’t really needed for survival. Wants include the things we all love like entertainment, the latest technology, and fashion. Although life would seem incomplete without these things, we should minimize our wants to 30% when using this budgeting method.
The savings category actually includes more than just your savings. This 20% of your money can go towards growing your savings, paying more than the minimum on your debts, or investing. You’ll have the flexibility to choose exactly what you want to do with this 20% but paying down debts and building an emergency fund is generally recommended before investing outside of your retirement account.
If you like simple plans and have the discipline to keep your needs and wants separated, the 50/30/20 budgeting method might be the best budgeting tool for you. If you’d rather not separate the two, get whyze and check out the next video on the 80/20 budgeting method.