Budget 50 30 20

With debt levels on the rise, it’s no surprise people are on the hunt for the next best budget plan. Introducing the budget 50 30 20, popularized by Senator Elizabeth Warren in her book entitled All Your Worth: The Ultimate Lifetime Money Plan. The basic rule is to divide up after-tax income and allocate it to spend 50% on needs, 30% on wants, and putting away 20% to savings. Sounds pretty simple right? Let’s have a more in-depth look at this new-age budget 50 30 20 plan and how it may be able to help you put your hard-earned dollars to better use.

Budget 50 30 20

The Budget 50 30 20 Plan

50% Needs:

Needs are those bills that you simply can’t get away with not paying. They are quite literally responsible for your survival. They include things like rent, mortgage payments, car payments, insurance, groceries, health care, and utilities, etc. All that fun stuff. And no, this doesn’t include your daily Starbucks. Necessities only.

50% of your after-tax income should be all that is necessary to cover your needs and obligations. If you find that you are spending more than that, it may be time to either cut down or try to downsize your lifestyle. This could involve moving to a smaller home or acquiring a less flashy car. Or even things as simple as taking public transport to work or carpooling. Or maybe convincing yourself that three takeaways a week is perhaps a little much. Life is about compromise and if you want to get the most out of this budget plan, it’s time to start compromising, people.

30% Wants:

Now, this is where your Starbucks comes in. Wants are all the luxuries you spend money on that are not essential to your survival. These may include dining out, going to the movies, or purchasing that new handbag that’s been taunting you in the shop window. After all, life’s too short not to treat yourself! Fundamentally speaking, anything in this category is completely optional if you boil it down. If money is a little tight but you still want to do the things you enjoy, perhaps do a home-workout instead of going to the gym or cook instead of eating out. I know it’s not the same but you’ll thank yourself later when you find that you have enough money to splurge guilt-free on a vacation or the latest electronic gadget.

Upgrade decisions also fall under this category. These include things like choosing the expensive steak instead of the more budget-friendly hamburger, or perhaps the BMW over the Honda. It’s up to you how you choose to enjoy your hard-earned money but at least with this budget 50 30 20 plan, you can do it relatively guilt-free.

20% Savings:

Finally, the most important part of the budget 50 30 20…the savings! This includes things like adding money to an emergency fund in a bank savings account, making IRA contributions to a mutual fund account, or investing in the stock market. It is vital that you have at least three months of emergency savings on hand just on the off-chance you lose your job or something unforeseen happens. Secondly, you should focus on retirement and other financial goals you may have down the road.

Debt repayment is also included in this part of the budget 50 30 20 plan. While minimum payments are part of the "needs" category, any extra payments reduce the principal and future interest owed, so therefore they are savings.

Why should you follow the budget 50 30 20 plan?

Did you know that as of March 2020, the debt levels in America reached a staggering $14.3 trillion! We are notoriously bad at saving, always finding ways to justify spending our money on all matters of miscellaneous things and then wondering how we’ve ended up to our eyeballs in debt.

The budget 50 30 20 plan, if followed exactly, should help individuals manage their after-tax income more efficiently. Life is always throwing curveballs our way which is why it’s paramount that you have access to money for emergencies and savings. With people living longer, it is never too early to start thinking about a retirement fund as well. A comfortable retirement is the least you deserve after a long life. The second your emergency fund has been used up, your immediate priority should be on replenishing it. Happy saving!