The 50/30/20 is a smart monthly budgeting method that will tell you how much you put towards your savings each month, and how much you spend on unnecessary things each month. It can also help you keep track of your spendings and how they align with your saving goals for your future. With your monthly budget, you can say on course and avoid overspending and put your money towards better things each time you spend your money.
What is the 50/30/20 budgeting rule? It is an easy method that helps you manage your money in a simple way; the goal - to help you control your spending and for you to use monthly. The rules are to divide your monthly after-taxes and other fee income into the three spending categories: 50% for needs, 30% for savings, and the 20% for wants or paying of debt. By knowing exactly how much you are spending into each category it will make it easier for you to track expenses and know where you put your money. By keeping your expenses constricted to this budgeting strategy you will no longer be looser with your spending habits, and will ultimately avoid bad spending habits. The 50/30/20 will keep you on track to all your financial goals as they can range to clearing debt or future goals you have for yourself.
The most important thing is to set aside 50% of your income for essentials. Although this might seem like a high percentage as it will be half your monthly income, most of the important purchases and payments from this section. This category is the things you are forced to pay month to keep you alive while working in your job, these things can include housing, food, transportation costs, and utility bills. Although the costs of these items can vary from person to person, and geological location, it all comes together to maintain a balanced budget.
The next is the savings that takes up 30% of your budget. Setting money aside for savings monthly can really rack up and be used for other benefits in your life. This can be used for retirement accounts, debt payments, or even other saving plans - these are things that you don’t want to forget about as they will help you in the future. The best thing to use is to input this money into your savings after your essentials (in case something happens that goes over budget) and serves as backup money incase of emergencies.
The last is the wants in your life, which can take up 20% of your income, this would represent the unnecessary expenses but will enhance your life. Every month you should be able to set aside some money for some things that you want in your life. These things can include, clothes, bill plans for phones, netflix, gym memberships, etc. You can either have the wants in your life as a 20% or a 30% in either category but decreasing it to 20% is best as you would be able to make fewer costs and decrease your overspending amounts.
Why should I use this plan? According to consumer.gov, a budget helps you make sure you will have enough money every month, and without a budget you will be unorganized and might run out before your paycheck. Using this 50/30/20 rue helps you show and decide what you must spend your money on, and if you can spend less money on some things and more on others (shown in the 50/30/20). You save money for emergencies, expensive things, bills, and your goals - and this budgeting rule helps you keep track of your payments, and prioritize what you spend with your monthly income.
How do I use the rule? Here is a step-by-step guide to using this budgeting technique.
- Calculator your after-tax income
- Categorize your spending for the past month
- Adjust your spendings to match the 50:30:20 rule
- Use a 50:30:20 calculator or spreadsheet to crunch numbers.
- Throughout the month, spend according to the rule but allow yourself money movement through the categories if needed.
- Repeat the process every month.
Should I use this? The first thing you should ask yourself is if this is an appropriate money manager for you. The 50/30/20 creates a zero-sum as you put every dollar you earn monthly towards some specific expense, as this budgeting is used to help you decrease the amount you spend on unnecessary things. But it also provides you with help when unknown expenses pop up or increase as you can use money from the wants and savings categories. The 50/30/20 rule isn't the only budgeting method as you can use the 80/20 or the 70/20/10 rule to set aside your monthly income. What rule would you use? Visit sources like thebalance.com to learn more about these budgeting methods and how they can improve your life.
Works Cited
Consumer.gov, www.consumer.gov/.
Hancock, John. “Debunking the 50-20-30 Budgeting Rule: John Hancock.” JohnHancock, www.johnhancock.com/ideas-insights/debunking-50-30-20-budgeting-rule.html.
VanSomeren, Lindsay. “Keep Your Budget Simple With the 50/30/20 Rule.” The Balance, 13 Feb. 2021, www.thebalance.com/the-50-30-20-rule-of-thumb-453922.
Whiteside, Eric. “What Is the 50/20/30 Budget Rule?” Investopedia, Investopedia, 28 Jan. 2021, www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp#:~:text=Senator Elizabeth Warren popularized the,socking away 20% to savings.
Ashley Anderson - I absolutely love that you wrote your blog about a rule that people can use in their own lives when saving vs. spending money. Personally, I have never heard of the 50/30/20 rule, but I found it very interesting to read about how you perceived it. One question I have for you is regarding the graph you provided. It states that the money you should be putting towards your wants is slightly greater than what you should be saving. My whole life, I have learned that saving money is much more important than spending it on things you don't need. Why do you think the chart you provided is set up this way (with more money being put towards your wants vs. savings)? However, I do agree that 50% should be put towards essential items that you need. As well, I really liked how you provided a "should I use this?" section. This rule might not be for everyone, but for those who are interested, could benefit them tremendously from using it. Overall, really nice work and I love the tips you provided!
ReplyDeleteI think that this is a really applicable rule for many of us to start considering as we get older and start having to make larger financial decisions. This is a rule that I have never heard of, so it was quite interesting to see how it works. As I was reading through it, I was wondering if 50% is really enough to cover expenses? Especially with people first getting apartments/houses, and possible living in a more expensive area, is 50% going to cover it? Then from there I thought about how that would push back into the other categories, and I went back to thinking about how most people will only save 10% of their income, rather than 20%. I think that this is a really good strategy for people who are new to finances and I would be greatly interested to hear how it goes for someone in the real world!
ReplyDeleteI would've never thought or have seen such a rule before, I find it really fascinating. One thing I would like to know is, although you have sources and great information, but do you have a testimonial or a statistic of this actually help people monthly spending? If it does work as you say, this can make such an impact with so many students here and for other young adults too. And not only that, you've provided other similar rules to follow for their budgeting if this rule might not be for some.
ReplyDeleteI liked reading your article. Many of us in high school have jobs and might not know how to save money. I think having a baseline/recommended percentage of savings and spendings can help people save more for their future. Budgeting is so important to keep track of your money and save for a better future. Even if you start with the 20/30/50 rule you get a better baseline for managing your money and can personalize it to current financial situations. Understanding how much money you are spending can help you think before you buy. Your article was very informative and I learned a lot from it. I loved how organized your article was, the pie chart image, and the list on how to use the rule helped for a better understanding!
ReplyDeleteI think that this method is good for young adults or college students. This is not something that I would use right now just because there is nothing that I would have to use for the 50% category. Because I live at home I don’t have a lot of bills to pay and all my essentials like most highschoolers are covered by my parents. The method I use right now would have to be no method. I just put my whole check into my checking account and take money as I need it. But I definitely think this is a method I would use later on in life. Is this a method you use right now? And if so does it work well for you?
ReplyDeleteThis rule would work in many cases, but I'd like to point out that some people's basic living expenses take up more than 50% of their income to begin with which would make this ratio have to be adjusted. Since incomes are so different from person to person and people have different expectations when choosing basic living expenses (such as eating organic, or having a fancier home) this may be difficult to maintain. Overall, I think this is a good general rule to keep in mind, but it may need to be adjusted for some people due to their financial situation.
ReplyDeleteI think this is a very interesting way of budgeting. I only have a few qualms with this way of budgeting, mainly because most of us on this blog are in fact still teenagers and do not live on our own. Do you use this method? If so what do you use that 50% on? I did appreciate that in the end you also mentioned that there are other methods that could work such as the 80/20 method with I assume is 80% saving and is 20% wants or needs. I think it would be really interesting to see the comparison between multiple saving methods and finding which one most teenagers would be likely to use. Overall this was a great blog to help reflect and consider what kind of saving and spending methods I should be using or focusing on.
ReplyDeleteAfter reading your blog I have a good understanding of the 50/30/20 rule! Honestly, I have never heard of this rule before and is definitely something I would consider using when I have a stable income. This seems like a great way to manage money. This method can still allow for you to attain your needs, but also take care of necessities and savings. I also liked that you can change this rule to be personalized to your life and how you want to spend your money. I would be interested to see how many adults incorporate this rule into their life and how successful it is for them. Overall, great job!(Ally Longden)
ReplyDeleteI really loved your blog. I think that it gave really helpful information and I think that it was good to share this information with high school students who most probably didn't know about this rule. I didn't even know about this and I think that after reading I should really consider using it. I think it would be a great way to help manage my money. I also like that there is some flexibility in the rule. As in you can change the 20% and the 30% depending on your financial situation.
ReplyDeleteI really liked your in depth explanation of the different aspects of the budget rule, as well as your step-by-step guide to utilizing the rule overall. I think many people would benefit from applying this rule in their budgets, and I believe that I can utilize this rule to help my personal budget.
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