Now I don’t know about you, but I think we can all agree that having a budget is never a bad thing. I mean we all should really be keeping track of what money comes in. What money goes out. What money is left over. And where our money goes. It can be a tough task to sit down and create a realistic budget in excel. This is why the 50/30/20 budget method is a great approach to budgeting that doesn’t require you to work out where your money is going to go, right down to the last penny.
WHAT IS THE 50/30/20 BUDGET METHOD?
Essentially, this budget method is a way to allocate your money according to these three categories. Needs wants and financial goals. It’s not a hard-and-fast rule and doesn’t require you to budget to the penny. But rather it’s a rough guideline to help you build a financially sound budget.
50% OF YOUR BUDGET SHOULD GO ON NEEDS.
The first and largest section of this budget is for your needs. So these are the things that you absolutely need to spend money on. Things like housing costs, heating, electricity, and food, etc. The main things included in this section are:
- Housing costs – so your rent or mortgage + council tax
- Utilities – gas, electricity, and water
- Insurance – home, life, car, mortgage, critical illness etc
- Food – basic necessity.
I think we can all agree that these things are essential to have in your budget for the wellbeing of you and your family. These are the non-negotiables. This is why 50% of your budget is allocated to this section.
30% OF YOUR BUDGET SHOULD GO ON WANTS.
The next section of this budget should go towards wants. So these aren’t the non-negotiables, they are the things you want, but don’t need to survive. These could include:
- Entertainment
- Holidays
- Personal items
- Hobbies
Obviously, these things will differ depending on your lifestyle. But add in this part anything you want, but don’t really need to live on.
20% OF YOUR BUDGET SHOULD TO GO SAVINGS.
And in the final section, you want to allocate 20% of your income towards your financial goals. This could include:
- Clearing debt
- Emergency fund
- Savings
- Investments
Again, this will differ for everyone depending on their lifestyle and financial goals. Your goals could be planning for retirement or clearing debt. Or both.
So does this method actually work? Well, it’s definitely easier than having a budget down to the last penny that comes in each month. As you’re working in percentages rather than real figures. I think it’s also a good way to work out of your necessities are within or over your budget.
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