Budgeting for the first time can be challenging, especially when figuring out how much to spend on different areas of your life. Even if you want to pay off your debt or save for an emergency fund, you might wonder how much money to allocate to each of your financial goals. That is where the 50/30/20 budget calculator comes in.
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50/30/20 Overview
The 50/30/20 budget assigns a specific percentage of your monthly take-home pay to different spending categories, making it easy for you to know exactly how much money should go to each spending bucket. Here’s how it works:
50% Goes to Living Expenses/Necessities: To make it through the month, you must pay your essential expenses. You can consider this category the minimum you need to survive throughout the month. This spending bucket includes:
- Monthly Mortgage or Rent
- Groceries
- Cell Phone Bill
- Insurance
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30% Personal Spending: With 50% of your income going toward mandatory living expenses, it is essential to allocate a percentage of your paycheck for you. This is where the personal spending category comes into play. This spending bucket includes:
- Clothes or Shoes
- Travel Expenses
- Date Nights
- Apartment or Home Furniture
20% Saving, Investing, and Debt: What makes the 50/30/20 budget so popular is that it gives you a framework for allocating your spending to improve your finances. The tactical execution of this budgeting framework will increase your net worth over time by eliminating debts and investing. Not only are you keeping a roof over your head and spending money on things you want, but you are also saving for the future. This spending bucket includes things like:
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The 50/30/20 Budget
After playing with the 50/30/20 budget calculator, you might realize you need to focus on increasing your income.
Here are some resources to accelerate your earning potential:
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- What Is a Freelancer? Pros and Cons
If the 50/30/20 budget didn’t speak to you, don’t worry. There are many other budgeting systems to try. Budgeting systems range from being highly lenient about how you spend your money to much more rigid and structured approaches. Depending on your financial situation, you can choose the best money move.
Here are other budget systems to review:
Frequently Asked Questions
Not necessarily, if you want to focus on strictly managing your monthly cash flow, the cash envelope budget could be perfect. Alternatively, you might be debt-free and spend all your discretionary income investing in stocks, bonds, or real estate. In this case, the passion budget could be an ideal fit.
Smart Summary
Playing with numbers is part of creating the best financial plan. Not everyone lands on the best budgeting framework right away, so don’t feel discouraged if you don’t like the first budgeting system you choose. The reality is that as your money needs change, so too should your budgeting system. Smart Money Calculators can help you determine what works best for you and your finances.
