Dividing your spending with the 50 30 20 method

04/06/2020

Being financially prepared for any eventuality does require that you have some type of budget or spending plan, otherwise you will likely not reach your goals or be able to be financially prepared for any type of situation. The 50 30 20 budget is helpful when you want to have a less detailed budget and not track several categories.
 
Overview
The simplicity of the budget is the real key to people being successful using it. Basically there are three categories for your expenses and they are based off your net monthly income. The first category is necessities which should account for no more than 50% of your total monthly income. The second category if for expenses considered lifestyle and should be 30% of your total monthly income or less. The final general category is considered savings and debt and should be 20% of your total net monthly income. The most important element of the budget is that you are basing it upon your net monthly income.
 
50% What are necessities?
The following expenses would be considered necessary and need to not exceed 50% of your net monthly income.

  • Mortgage or rent

  • Utilities including electric, gas and water

  • Groceries

  • Car expenses not including any car payments

  • Basic clothing

  • Insurance including auto, home and other

  • Healthcare expenses

  • Child care

 
30% What are lifestyle expenses?
Lifestyle expense are those that could be also be considered wants and definitely can be altered if they exceed 30% of your net monthly income.

  • Dining out

  • Mobile phone

  • Internet/cable

  • Streaming/gaming services

  • Gifts

  • Travel

  • Entertainment

 
20% What is included in savings & debt?
This category is where you find your non-mortgage debt and also any of your savings initiatives. Besides focusing on minimum payments it can include any extra payments as well. This should be 20% of your net take home pay.

  • Credit card payment

  • Student loan

  • Auto loan

  • Personal loan

  • Emergency fund savings

 
This budgeting method might not work for everyone, especially if your cost of living is higher or your debt load is higher than others. However, it can at least give you guidance and goals on where you should be and help know where to lower expenses. If you are experiences a reduction in your income, this is a great tool to see how you might need to adjust your spending habits. 

Download or print "50-30-20 Method" PDF

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