Budgeting with Percentages: The 50/30/20 Method
One of the reasons you might be avoiding creating a budget is because you think they’re overwhelming. There are many budgeting methods to choose from, and some are more intricate than others. If you’re looking for a budgeting method that’s easy to personalize, this is a great place to start.
The 50/30/20 budget method breaks your income into three main categories; Needs, Wants, and Savings.
50% of your income goes towards needs.
This includes the basic necessities of life, like your rent, mortgage, bills, groceries and transportation. Consider keeping any money meant for bills in a separate account to help prevent you from accidentally spending it. I already know what you’re thinking “UH, surviving costs more than half of my income!” I hear you, and I am you.
The great thing about this method is that you can adjust the percentages to fit your life. It’s called personal finance for a reason, and you can tweak almost anything to make it work in your life. Do your basic needs eat up 70% of your income? Adjust your percentages so you can create a realistic budget based on your salary! For example, you could adjust to 70% needs, 15% needs, and 15% savings.
30% of your income goes towards wants.
This includes things all of the things that fill up your cup. Think of a new haircut, buying a birthday gift, or a dinner with your friends. If you can’t figure out if something is a need or a want, ask yourself, “Will I survive if I don’t buy this?” If the answer is yes, it’s probably a want.
Budgeting isn’t supposed to be restrictive. It’s supposed to be realistic. You work hard for your money, which means you deserve to enjoy it. If you don’t include some fun money in your budget, it could lead to a scarcity mindset, overspending, or a loss of motivation. Regardless of your money goals and income, always be sure to treat yourself to something that you can afford and aligns with your spending values.
20% of your income goes towards savings and investments.
As much as you deserve to treat yourself now, your future self deserves to be considered too. This could mean saving up for a vacation, investing for a comfortable retirement, or filling your emergency fund. Any saved money that isn’t put towards investments should be kept in a high interest savings account so it can earn you a little bit of money and help you reach your goals faster.
The great thing about saving a percent of your income instead of a fixed dollar amount is that you can become more consistent with your savings. If you adjust the numbers and decide to save 10%, you’ll still be saving $10 for every $100 you take home. Every dollar counts; don’t let a small number stop you from achieving big things.
You might have to run a few math equations through a calculator before you can find the percentages that work for you, but then you’ll have a guideline that you can follow every time you sit down to create a new budget.