How to Budget Using the 50/30/20 Budget Method

budgeting money plan
Blog header image 50/30/20 Budget Method or 50/20/30 Budget Method

Raise your hand if you have a budget spreadsheet with over TWENTY categories!!  🙋‍♀️  🙋‍♀️  🙋‍♀️

Now, raise your hand if you spent hours filling out that spreadsheet only to have life completely upend the whole thing?  🙋‍♀️ 🙋‍♀️  🙋‍♀️  


Yeah, me too.  Sigh.  🤷‍♀️  🤷‍♀️  🤷‍♀️ 


According to a recent Gallup poll, only 30% of Americans use any kind of budget at all, much less consistently.  Additionally, according to Intuit, the makers of Mint and TurboTax, 65% of Americans have no idea how much they spent last month


That’s kind of scary! 


I don’t think it’s necessary to live in a spreadsheet, but I do think you have to know where your money is going won’t know where your money is know what I mean?


So, let me introduce you to my favorite budgeting method: the 50/30/20 Budget Method!


What is the 50/30/20 Budget Method?

The 50/30/20 Budget Method is a way to organize your after-tax money and then evaluate it but at a very high level.  By after-tax money, I mean what gets deposited into your checking account each pay period.

This method was first popularized by Senator Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan.  Whether you agree with her politics or not, the method she came up with is a solid starting point to evaluate where your money is going and if it’s working for you or not.  


This method breaks your money up into three basic groups, or “buckets”, if you will:

  • 50% goes to “Needs”
  • 30% goes to “Wants”
  • 20% goes to Savings/debt repayment


So, what’s a “Need”?

A “need” is anything you’d still pay for if you were to lose your job, have to quit your job or in some way lost your income.  Rent, mortgage, car payment and insurance are examples of Needs.  A “need” might also be your cellphone because I don’t know about you, but in today’s day and age, my cellphone is a tool, not a toy.  Daycare might also be a “need” so you can go on job interviews.  A lot of daycare centers won’t let you go from full-time to part-time without potentially losing your full-time spot.  Which means “needs” can be relative and very personal.


What about “Wants”?

A “want” is anything that makes your life more joyful or pleasant, but that in the event you lost your job or your income you’d turn off or pause.  So, perhaps you’d turn off all of your streaming subscriptions, but you’d keep your internet connection so you could look for and apply for jobs.    Clearly, things like clothes, shoes, gym memberships, restaurants, or any other expenses related to leisure activities would fall into the “want” category.  


While this category does contain the expenses that make your life more joyful, I don’t think that necessarily means luxury or unnecessary expenses.  For example, charitable giving could fall into this category.  Personally, I also put any extra amount that I’m using to pay off my credit cards or other debt in this category because I “want” that debt to be gone!  This category is for any expenses that are not a Need, but that doesn’t necessarily mean the character of the expense is luxury.  


Finally, Savings and Debt

This category is pretty self-explanatory.  Saving money consistently every month and paying off debt as quickly as possible are the two ways a solid financial foundation is built.  If you have a lot of debt, then this percentage may be much higher than 20% - and that’s okay!  Now, that you know, you can work towards paying down your debt to get closer to this mark.  


Paying off debt is great and awesome and you totally should do that.  


But, you should save, too.


Everybody needs cash, especially when emergencies happen.  Saving an emergency fund needs to be the number one priority on your list of things to do to build your financial foundation.  Having an emergency fund to fall back on if you should lose your job, a kid or a parent gets sick, etc, just makes good sense.  Yes, if one of those things happened you could put expenses on your credit card.  But, some items like mortgages are really difficult to pay with a credit card.  Almost impossible, sometimes.   

This is because the mortgage company doesn’t want to pay the credit card fee on their side.   When you put an expense on your credit card, the person you’re paying has to then pay the credit card company a fee for processing your payment.  For high ticket items like mortgages, this can be very expensive for the mortgage company.  


So, usually, they won’t let you do that.  Which means you need to pay in cash.  This means you’re going to need an Emergency Fund!  I’ve written a whole series of blogs on Emergency Funds: what they are, how to save one, and even where to save them!  You can access all of them HERE.


My recommendation is to split your 20% Savings and Debt portion into two pieces.  The amount depends on how much you need to pay towards your debt, but make sure you are paying more than the minimum on your debt!  


The 50/30/20 Ratios are ASPIRATIONAL 

The most important thing to remember about this, or any other budget method:  These ratios are ASPIRATIONAL.  No one’s budget is ever going to be perfectly broken up into 50/30/20.  I don’t care how good you are or how many hours you spend “giving every dollar a job”.  It’s just not going to happen.  This method is a gauge.  It’s a way to make sure you’re staying within certain boundaries that you’ve set.  But, it’s a “rule of thumb” kind of thing, not a law.  Don’t let yourself get anxious and quit just because your budget isn’t “perfect”.  There is NO PERFECT!

How to organize your money for the 50/30/20 Budget Method

First, I organize my bills by paycheck, so I know which bill I’m paying with which paycheck.  I like the Paycheck Method of organizing my bills because it’s so similar to organizing my time each week.  You can read a blog I wrote about How to Use the Budget by Paycheck Method HERE  or watch a video about it HERE.  


Once I’ve got my bills organized, I like to track how I’m doing weekly using my super simple, easy and FREE Bill Calendar method.  Using my calendar method, I can see what bills are going to get paid this month, so I don’t get surprised.   

I also create “appointments” for other expenses I know I’m going to have.  So, a baby or wedding shower, dinner for my BFF’s birthday, etc.  When I create the “appointment” I also include how much I’m going to spend so when I have my weekly Money Date every Sunday afternoon, I don’t forget to plan for that expense.    


(If you don’t know how to do your weekly Money Date, you can get my checklist for Free here!  🙋‍♀️  🙋‍♀️  🙋‍♀️)


Getting my bills and expected expenses organized in this way first, helps me then organize them into the bigger buckets for the 50/30/20 Budget Method.  

Once I know where my ratios currently are, I can keep an eye on them monthly to evaluate how well I’m doing moving forward and make adjustments accordingly!


Have you/do you use the 50/30/20 Method?  Love it? Hate it? Couldn’t get it to work for you?  DM me on Instagram and let’s talk about it!

If you liked this blog, you might also like:


THIS is Why Your Budget Didn’t Work! (and what will!)

How to use the Budget by Paycheck Method

Snowball vs Avalanche vs Tornado - which debt payoff strategy is right for YOU?




**I am not a licensed financial advisor.  I am a money expert and I offer education, tips, tricks and my opinions around money.  You should consult a professional who understands your needs in order to make the best decisions for you!  Additionally, some links in this blog may be affiliate link, which means if you click the link and buy the product I may earn a small commission - at NO COST to You! TYIA :-)

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