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The 50/30/20 Budgeting Rule

I. Love. Budgeting. When I discovered its power during my post-college/student loan repayment phase (What can I say?? I’m a late budget bloomer!), I became obsessed. On my non-profit salary, I didn’t have a lot of room to play with the $700 student debt bill I had each month. Plus, I graduated college in 2010 when the economy was still on the mend and the job market wasn’t all that stellar. So budgeting became my best friend.

I don’t remember how I discovered the 50/30/20 Budgeting Rule, but I still have my Google Sheet from 2012 that assessed my current needs/wants/savings ratio. If you’re unfamiliar with it, the method recommends how much of your income you should allocate to your:

  • Needs (rent, utilities, food, basic clothing): 50%
  • Wants (entertainment, dining out, gifts, luxury items): 30%
  • Savings/Investments (retirement, mutual funds, emergency fund): 20%

503020 Budget Rule

There are different opinions out there about how to categorize debt payments – some categorize them under needs, while others allocate them under savings/investments. I personally would categorize them as a need. It motivates me to pay down that debt in this way and doesn’t fool me into thinking I’m investing that money. It’s totally up to you and is a flexible method.

The ratios can, of course, be adjusted according to your unique situation. For example, if you live in a city with a high cost of living, you might need to increase your needs to 60% and even out your wants and savings/investing to 20% each.

As I climbed the salary ladder, I would update my 50/30/20 spreadsheet to adjust my projected expenses. It excited me so much to see my salary increase slowly but surely, as well as my increasing ability to set aside savings or pay down debt. I would even project how it could look with different salary amounts. I have too much fun with spreadsheets sometimes!

If you don’t know where to start when it comes to budgeting, the 50/30/20 Budgeting Rule gives you a great place to start. It provides you with a decent picture of where you’re currently spending your money and gives you a road map of where you want to take it. It’s also eye-opening to see it categorized in just three places – this simplified grouping makes it more approachable and, in my opinion, way more fun!