We talk quite a bit about budgets. However, I also know that just as we are all different, so are the types of budgets that work too. If you find that a basic budget is really not for you, then look into using the 50/30/20 budget.
What I love about this type of budget is that it really can work where other budgets have failed. It is easy to use and is not a stringent as other budgets, which is why it works better for many.
The 50/20/30 budget is where you look at your income (after taxes) and make sure that no more than 50% goes towards paying your fixed expenses; 30% of your income is used towards discretionary spending and an additional 20% is saved. Sounds pretty easy, doesn’t it? Let me just show you practical application of putting this rule into place.
Other helpful budgeting tips:
- Why You Need to Use the Cash Envelope Method
- How Much Should You Budget for Groceries?
- How to Create a Budget with Irregular Income
BUDGET AT WORK
Let’s say that your take home pay is $3,000 every month. Here is an idea of how your budget might look. Now, keep in mind that this doesn’t include all items you have in your own budget. This is a short version, just used to keep it simple.
Mortgage/Rent = $875
Phone = $75
Utilities = $200
Vehicle insurance = $85
Vehicle payment = $200
Credit card bills = $50
Total = $1,485 (49.5% of budget)
Groceries = $600
Auto fuel = $150
Restaurants = $75
Clothing = $75
Entertainment = $50
Haircuts = $25
Total = $975 (32.5% of budget)
Retirement savings = $200
College savings = $165
General savings fund = $200
Total = $615 (18% of budget)
In this example, you can see the fixed expenses and savings are less than the desired percentages. In addition, discretionary is higher. However, both are close to those amounts.
What is great about this type of budget is that you can change the percentages as work for you. So, if you need to set 60% for fixed and 15% for savings, that leaves 25% for irregular spending.
Those who seem to do better with this type of budget are those who do not have regular income, such as hourly with fluctuating schedule and even those with commission driven income. This type is also not as detailed in amounts to spend.
Should you use this budget?
If you are trying to get out of debt, I really would not recommend this type of budget. The reason is that you need to see exactly where every single penny goes each month so you know what you can throw at paying off your debts. I would use this if you were debt free and really did not spend more than the same amounts on discretionary items every single month.