The 50-30-20 budget worksheet is a popular approach to managing your finances.
In this method, the emphasis is given to allocating your income to different categories such as Needs, Savings, and Wants.
It is so simple that for years we used this method to save for the downpayment of our first home.
Want to know how we did that on just one income while living in one of the most expensive cities in the United States?
Let’s get started!
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Please know that I’m not your financial advisor. So use this article for educational purposes.
Always check with a good financial advisor to get tax advice for your particular circumstances
Towards the end, I have also suggested a sample 50-20-30 budget for different people and income groups.
Free 50-20-30 Budget Worksheet with a guide that works
Get your FREE budget worksheet below.
Do come back to this article to learn how to effectively use this budget worksheet for the maximum benefit.
Why does a 50-20-30 budget work?
Because it’s simple and distraction-free.
If the budget word sounds too complicated for you, use the percentages below and you’re good to go!
The 50-30-20 budgeting rule is suitable for individuals who desire a straightforward budgeting approach that promotes a healthy balance between essential expenses, personal wants, and savings.
It allows for flexibility while providing a framework for responsible financial management. Hence, it is considered as one of the simplest budget strategies.
Percentages of your budget
Instead of waiting until the end of the month to save for that gift you wanted to buy, now you can use the % below.
Take your total monthly income and create 3 categories. This income should be your total after-tax income and not the gross income.
Please know that if you have employer deduction for your taxes, this method is very simple to use. Most companies in the United States take out employer deductions for social security from their full-time employee’s gross income.
1) 50% of your total monthly income–>NEEDS
2) 20% of your total monthly income–> SAVINGS
3) 30% of your total monthly income—> WANTS
50% for NEEDS
This category allocates 50% of your take-home pay income towards essential expenses that are necessary for your day-to-day living.
These expenses typically include:
- Rent for your home or if you have your own home and it’s on the mortgage, the monthly payments to your bank is included in the needs
- Utilities (electricity, water, gas)
- Groceries
- Transportation (car payments, gas, public transportation)
- Insurance (health, car, home/renter’s insurance)
- Minimum debt payments (credit cards, student loans, etc.)
Please note the transportation in the category does not include leisurely travel.
The goal is to ensure that half of your income covers the essential aspects of your life. It does not include extra payments to pay off your debt.
If you are spending more than 50% of your income after the tax on these expenses, you need to look into ways to reduce the expenses
We noticed that living in the tri-state area of the USA was the most expensive.
We were spending more than 65% of our monthly income on just our needs.
Therefore, we decided to move to less expensive suburbs and got our financial house in order.
Related article: 40+ tips to save money every day
20% for Savings
Allocate 20% of your income towards savings. This category focuses on building your financial future and improving your financial well-being.
It includes:
- Emergency fund savings
- Retirement contributions such (as 401(k), IRA, etc.)- normally I always suggest matching the amount your employer pays for the employer-sponsored retirement plan
- Paying off debt (additional payments beyond the minimum required)
- Investments
The 20% allocation towards savings and debt repayment is essential for building financial security and working towards your long-term financial goals.
30% for your Wants/ Discretionary Spending
Allocate 30% of your income towards discretionary expenses, which are non-essential and provide room for enjoyment and lifestyle choices.
These expenses can include:
- Dining out and entertainment
- Leisure Travel and vacations
- Hobbies and recreational activities
- Shopping and personal care
- Gym memberships and subscriptions
- Non-essential technology purchases
The important part is this category allows you to have some flexibility and enjoy your money without compromising your essential expenses or savings goals.
Is the 50-30-20 budget the same as the 50-20-30 budget?
You will notice I often referred to the 50-30-20 budget as the 50-20-30 budget.
That is because my mother was a banker. She used to manage our household after saving a minimum of 20-30% of my family’s income.
Since my father never took out any mortgage for building our house or buying a car, her monthly needs amount was way less than 50%.
After I started earning money, I stuck with the same plan as Mom.
But for all practical purposes both the methods are same. It’s just that the 20% saving category takes the upper hand over the 30% wants category.
How to use the 50-30-20 budget rule to create your own budget?
The basic rule of thumb of the budgeting process is you do not spend the extra money you do not have by taking up credit card debt.
However, it is the most important thing to pay off the minimum payment on high-interest debt.
- To make sure you understand the expenses and categorize them well, study your bank statements from the last 3 months.
Track expenses in the bank statements. The best way to do this is to highlight the expenses in 3 colors. E.g. Orange for mandatory expenses, Green for savings, and Red for discretionary expenses.
If you use a credit card for your day-to-day life, make sure to track actual spendings from credit card statements on a monthly basis.
Your card financial institution will allow you to download the statements from your bank account.
This is one of the basic banking services they offer, so take advantage of it.
- The next step is to add up all the mandatory expenses such as utility bills, rent, health insurance, food, and transportation.
These expenses should be under 50% of your total take-home income. If it’s higher, check out these tips to reduce your expenses
– Then set aside 20% of your monthly after-tax income in the savings account.
You can use this money for a ROTH IRA as well as any medium-term goal such as tuition fees for college students
– Now take 30% of your monthly take-home pay and create a spending plan at the beginning of the month. This gives you a better understanding of the total amount of money you can spend for personal use.
Even though it is a simpler method of budgeting, make sure you use the budget categories wisely. This article gives you a detailed list of budget categories and sub-categories.
You can use Google Sheets, Microsoft Excel Template, an online budget calculator, or digital download pdf files to make your own budget.
Choose the tool you find easiest to work with. Avoid falling into the trap of the latest app or complicated budgets.
When it comes to money management, simple is better and faster.
You can even use the index cards right now!
Want to know how to use simple index cards for managing money? You will love this book summary!
In the long run, you will notice that this simple guideline to create your personal budget is a great way to bring order to your financial life.
50-30-20 Budgeting Example
Let’s see how the 50-30-20 budgeting method works for someone with a monthly income of $3500. This example assumes that the person has essential expenses for child care, education, health, transportation, food, and rent:
- 50% for Essential Expenses- Total $1750
- Rent/mortgage: $800
- Utilities (electricity, water, gas): $150
- Groceries: $250
- Transportation (car payment, fuel, insurance): $300
- Child care/education expenses: $250
- 30% for Personal Wants- Total $1050
- Dining out/entertainment: $200
- Shopping/clothing: $150
- Gym membership: $50
- Hobbies/Leisure activities: $150
- Miscellaneous discretionary spending: $500
- 20% for Financial Goals- Total $700
- Emergency fund savings: $200
- Retirement savings: $300
- Debt repayment: $200
Here’s an example of a monthly budget based on the 50-30-20 budgeting method for a college student with a monthly income of $2000. This example assumes that the person has essential expenses for education, health, transportation, food, and rent:
- 50% for Essential Expenses- Total $1000
- Rent/mortgage: $500
- Utilities (electricity, water, internet): $100
- Groceries: $150
- Transportation (public transit, fuel): $100
- Health insurance/medical expenses: $150
- 30% for Personal Wants- $600
- Dining out/entertainment: $100
- Shopping/clothing: $100
- Mobile phone bill: $50
- Hobbies/Leisure activities: $100
- Miscellaneous discretionary spending: $250
- 20% for Financial Goals- $400
- Emergency fund savings: $100
- Education-related expenses (books, supplies): $100
- Debt repayment (if applicable): $200
Please note that as a college student, your financial situation and priorities may vary. This budget example is meant to serve as a general guide, and you may need to adjust the allocation of funds based on your individual circumstances and goals.
Also, remember that this example assumes minimum essential expenses. If you have additional expenses or financial obligations, you may need to make adjustments accordingly.
Who is the 50-20–30 budget good for?
The 50-30-20 budgeting rule is a good approach for individuals who want a simple and flexible budgeting method that provides a balanced approach to managing their finances. Here’s why it can be beneficial for various groups of people:
- Beginners in Budgeting:
It provides a clear framework for allocating income without getting too overwhelmed with complex budgeting techniques.
- Individuals with Variable Incomes:
This budgeting method is suitable for those with irregular or variable incomes because it focuses on percentages rather than fixed amounts. As income fluctuates, individuals can adjust the allocation accordingly while maintaining the balance between essentials, wants, and savings.
- Young Professionals and Graduates:
Young professionals and recent graduates often face the challenge of managing their finances for the first time. The 50-30-20 budgeting rule helps them prioritize essentials, indulge in personal wants, and save for future goals, fostering responsible financial habits from the early stages of their careers.
- Individuals with Multiple Financial Goals:
The 20% allocation for financial goals in the 50-30-20 budget provides a framework for saving and working towards various objectives.
With 20% savings, you can start working on the goals such as:
- building an emergency fund,
- saving for a down payment on a house, or
- investing for retirement
- Those Seeking Flexibility:
The 50-30-20 budgeting rule offers flexibility and allows for personal preferences within the given percentages.
It acknowledges that people have different lifestyles, interests, and financial priorities.
Within the 30% allocated for personal wants, individuals have the freedom to spend on things they enjoy and value, whether it’s dining out, travel, hobbies, or entertainment.
- Individuals Prioritizing Savings and Debt Repayment:
With 20% of the budget dedicated to savings and financial goals, the 50-30-20 rule encourages individuals to save consistently and make progress toward long-term financial stability.
It also emphasizes the importance of debt repayment, as individuals can choose to allocate a portion of the 20% to accelerate their debt payoff.
- Couples and Families:
Couples and small families can easily adapt to the 50-30-20 budgeting rule and apply the percentages to the combined household income.
It facilitates communication and collaboration in financial decision-making, ensuring that everyone’s needs and goals are taken into account.
- Related Article: 150+ Motivational Quotes on Debt-Free Living
- Related Article: 40 Money-Saving Habits
Frequently Asked Questions
Who is this budgeting method not good for?
- Individuals with high-interest debts:
While the budgeting method does allocate a portion (20%) to financial goals, including debt repayment, some individuals may require a more aggressive approach to debt reduction.
In such cases, a larger percentage of the budget might need to be allocated to debt repayment to expedite the process.
- Individuals with High Living Costs:
In certain high-cost areas or situations where living expenses are disproportionately high, the 50-30-20 budget may not be sufficient to cover essential needs adequately.
Adjustments may be necessary to allocate a higher percentage for essentials or explore cost-cutting measures in other areas.
- Complex Financial Situations:
Individuals with intricate financial situations, such as multiple sources of income, investments, or rental properties, may find the simplicity of the 50-30-20 budgeting method inadequate.
They might benefit from a more comprehensive budgeting approach that allows for better tracking and optimization of their various income sources and financial activities.
Can I adjust the percentages in the 50-30-20 rule to fit my specific needs?
Yes, it is always recommended that when your total income changes or there are major changes in your daily life, relook at the percentage categories and tweak them for your specific needs.
But always remember the first step is to set aside at least 20% of your income to save!
Related Article: Save money on Monthly Grocery List with these tips.
What is the easiest way to follow a 50-30-20 Budget?
Automate savings and bill payments to ensure I stick to the budget.
If you have a set date when you get your income, schedule your fixed bills to get paid after the salary day.
And then automate 20% of your saving to go to your savings account.
I recommend Ally Bank for it as they give better interest rates for their high-yield savings account.
It will save you a lot of time. In fact, that is what we do now.
Related article: Create a budget in under 10 minutes
What if unexpected expenses arise? How do I accommodate them within the budget?
I suggest you add a sinking fund and give a name to it as “unexpected expenses”.
I have written a separate article on how to handle unexpected expenses here.
Can I use the 50-30-20 Budget if I have irregular or variable income?
Yes, the 50-30-20 budgeting method can be adapted and used effectively even if you have irregular or variable income.
While the fixed percentages may seem challenging to apply in such situations, you can modify the approach to suit your needs.
Are there any alternatives or adaptations to the 50-30-20 Budget that I can consider?
Yes, there are several alternatives or adaptations to the 50-30-20 budgeting method that you can consider, depending on your financial situation and goals. Here are a few popular alternatives:
- Zero-Based Budgeting
- Percentage-Based Budgeting
- Envelope System
- Priority-Based Budgeting
- Value-Based Budgeting
- Hybrid Approach
Most popular budget apps
There are even a few budgeting apps that can help you implement the 50-30-20 budgeting method:
- Mint: Mint is a popular budgeting app that allows you to track your income and expenses, set budgeting goals, and categorize your transactions.
- PocketGuard: PocketGuard is a user-friendly app that connects to your bank accounts, credit cards, and loans to track your spending automatically. It categorizes your expenses, provides insights into your spending habits, and helps you set and monitor your budget goals.
- Empower ( previously Personal Capital) : Empower is an app that combines budgeting with investment tracking and retirement planning. It allows you to view all your financial accounts in one place, track your spending, and set budgeting goals. It also provides investment analysis and tools for retirement planning.
- Wally: Wally is a simple and intuitive budgeting app that helps you track your income, expenses, and savings goals.
Final Thoughts on the 50-30-20 Budget
Ultimately, the best budgeting method is the one that works for you and helps you achieve your financial goals.
Feel free to experiment with the 50-30-20 budget rule and see the quick win yourself.
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Related Article: Game-changing 60/30/10 Budget Rule to a stress-free life
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