Synergy Credit Union - It's A Money Thing -Budgeting with 50/30/20

Getting started with 50/30/20

50/30/20 is a proportional budgeting system, meaning you divide your monthly income into different categories based on percentage. It’s simple and flexible, which makes it a great option for beginners.

Calculate Your Income

Your monthly net income—that’s your take-home pay after taxes and payroll deductions—is used to determine your spending limits. For example, if your monthly net income is $3,000, you should be spending:

50%—$1,500 on needs
30%—$900 on wants
20%—$600 on savings

Did you know... the 50/30/20 budget comes from All Your Worth, a book by Elizabeth Warren and Amelia Warren Tyagi.

Define Your Categories

The 50/30/20 budget divides your monthly spending into three categories: Needs, Wants and Savings

Needs

Needs are your essential expenses—skipping them would lead to serious consequences like illness, job loss or legal trouble; examples include:

Housing/rent
Basic utilities
Food
Clothing
Health care
Transportation
Taxes
Minimum payments

Budgeting tip: Many expenses are a mix of needs and wants—if a bill falls under multiple categories, split its total between them

Wants

You’ll find that wants account for a lot of your spending—these are all the non-essential products and services you buy; examples include:

Cable/Internet/phone
Restaurants/takeout
Entertainment
Travel
Fashion
Electronics
Subscription services

Savings

Savings are any expenses related to debt repayment and savings plans; examples include:

Emergency fund savings
Student loans
Credit card debt
Retirement savings
Down payments
Personal savings goals

Tracking Your Spending

Track your spending for at least two months using the method you’re most comfortable with:

Apps
Online banking
Spreadsheets

Budgeting tip: Don’t forget to factor annual payments into your budget—divide the annual payment amount by 12 to get the monthly cost.

Compare your monthly spending to your 50/30/20 totals:

Needs goal: $1,500 / $1,300
Wants goal: $900 / $1,500
Savings goal: $600 / $200

Don’t worry if they don’t match up at first—start shifting your spending habits to better align your totals with the 50/30/20 guidelines

Make It Work

If your spending isn’t matching up with the 50/30/20 guidelines, you have a few options:

Reduce your spending: In order to hit the 50/30/20 guideline, you may need to sacrifice some of your wants or find cheaper alternatives for your regular monthly expenses.

Increase Your Income: If you’re consistently overspending and unwilling to compromise, the only solution is to make more money—look for side gigs to increase your income.

Modify Your Percentages: Make sure your budget matches your financial goals—for example, if paying off debt is your top priority, a 30/10/60 budget will get you there faster.

Sources: All Your Worth, TheSimpleDollar.com

Assign a task to every dollar you earn.

Budget to save money, but be sure to set funds aside for entertainment, shopping and other miscellaneous items.

WATCH THE VIDEO

Sneaky expenses can suck the air out of your budget.

Things like unused online subscriptions, expensive gifts for friends and family, recurring charitable donations and high bank fees can sneak up from behind and torpedo your budget.

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