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What Is The 50-30-20 Budget Template? Experts Explain Everything You Need To Know

Sheryl Nance-Nash
Contributing writer
Woman budgeting with Wellth Check lockup
Image by Ivan Haidutski x mbg creative / Stocksy
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Invest in your well-being: In this financial wellness series, we're diving into how to better budget for your physical, mental, and emotional health. Welcome to Wellth Check.

The concept of a budget is as uncomfortable for some people as a visit to the dentist: It’s viewed as a necessary evil. But that’s a mindset that will only set you back. A budget can lead you to the path of prosperity.

Some have a misperception that a budget is not only onerous, but complicated. It’s neither! In fact, there are very simple, straight-forward budgeting templates that can help set you up for success—that don’t involve complex algorithms. 

For example, there’s the popular 50-30-20 budget: “Someone could use the 50/30/20 rule if they're looking at a chunk of money—let's say, their first paycheck, or a big bonus—and thinking, ‘What's the most responsible way for me to use this money?,” says Berna Anat, financial educator and author of Money Out Loud: All the Financial Stuff No One Taught Us. Anat is partnering with Secret Deodorant for October’s Financial Planning Month to help with several of their financial wellness initiatives, including more accessible financial planning education. 

Here’s what you need to know.

What is the 50-30-20 budget template?

The 50-30-20 rule is fairly straightforward: You create a budget where you divide your after-tax income into three categories: 

  • 50% towards needs, such as rent, mortgage, food, for example
  • 30% for wants and discretionary items like entertainment, traveling, and eating out
  • 20% for savings and debt repayment

The beauty of the template is its simplicity: “This template is a straightforward and highly effective approach to managing your finances. It's like your financial GPS, providing clear directions for allocating your income. Whether you’re a seasoned budgeter or just dipping your toes into financial planning, this is a way to track your funds and achieve your goals,” says Rodney Williams, co-founder of SoLo, a community finance platform.

Truth is, winging it with your money just doesn’t work. You need to budget, and the 50-30-20 method of budgeting offers a balanced approach to managing finances. “It ensures that individuals prioritize essential needs, permits personal enjoyment, and emphasizes the importance of savings and being debt-free,” says Amy Colton, a wealth advisor and partner at Forefront Wealth Partners.

How do I get started?

“First you want to get a sense of where you are,” says Michael Ashley Schulman, founding partner and chief investment officer at Running Point Capital Advisors. To do that, track your income and expenses for at least one month. Categorize expenses into fixed (necessities) and variable (discretionary). 

Identify areas where expenses can be reduced. Set financial goals or priorities, especially if you want to make adjustments over time.

You can use online tools like SoLo’s template. Willams says to fill in your projected and actual income, add your expenses to the relevant categories, and let the template work its magic. Update it monthly to stay on top of your financial progress. You can check out the TikTok video walkthrough if you need help.

What are the benefits of 50-30-20? 

“Its simplicity is its strength. Unlike complex budgeting methods that require detailed tracking of every expense category, this rule provides flexibility and is easy for most people to understand and implement,” says Colton.

It’s digestible, much like the 80-20 rule for nutrition advises balancing healthy and indulgent eating. Eighty percent of the food you eat is healthy and 20% are your favorites that may not be as nutritious. The 50-30-20 budget method strikes a balance between financial essentials and discretionary spending. Both aim for a healthier, more balanced lifestyle – one for your body, the other for your wallet.

Unlike other budgeting strategies that might make you feel like you're trading financial responsibility for self-care, with this method 30% of your income is for things that bring joy, relaxation, and fulfillment to your life, says Williams. 

“This allowance for indulgence doesn't undermine your financial goals; it strengthens them. It acknowledges that life isn't just about hoarding money but also about living it to the fullest,” he adds.

By sticking to the formula, you’ll accomplish several goals, says Williams. Firstly, you prioritize your financial objectives, whether it's building an emergency fund, paying off debts, or saving for your dream vacation. “This prioritization ensures that your hard-earned money goes where it matters most,” he says.

Secondly, this method acts as a shield against overspending. “In the age of treating yourself, it's all too easy to splurge on non-essentials and lose sight of your financial health. This method instills discipline, guiding you to make informed decisions,” says Williams.

Is the 50-30-20 budget template right for me? Not always, experts warn

Colton admits the 50-30-20 rule is a one-size-fits-all approach and might not cater to unique financial situations. “For instance, someone with significant student loans or living in high-cost areas may find the 50% allocation for needs restrictive,” she says.

For example, Anat notes that, “in theory, the 50/30/20 rule is meant to help you cover all of your bases. The issue is, not everyone's bases are built the same,” she explains. “I live in San Francisco. For anyone living in a large city, the idea of our basic needs—sometimes rent or mortgage alone—fitting in the 50% column is literally laughable. Our lives can look a little more like 85/15/sad crying emojis.” 

Lawrence Sprung, author of Financial Planning Made Personal, says to view the 50-30-20 budget as “a general framework for attacking your budget. You may need to tailor this to your situation based on the amount of debt and or savings you have, along with your age and goals. Those with significant debt or lack of savings towards retirement or an emergency fund may need a more personalized approach for them.”

The takeaway 

Williams offers some final thoughts, “Budgeting is not about deprivation; it's about empowerment. It's the first step towards financial freedom and achieving your life goals. Be patient with yourself, adapt as your circumstances change, and remember that small, consistent steps can lead to significant financial success.”

And remember, this framework is flexible, reminds Anant. “When we recommend it to folks, we have to caveat that it's a generic framework. Your life probably won't fit into 50/30/20 if you live in a major city, or if you're financially responsible for other people, or if your wages haven't kept up with inflation,” she says. “And if it doesn't fit, you're absolutely not alone; this rule is meant to be bent.”  

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