{"id":1426,"date":"2020-12-07T08:00:00","date_gmt":"2020-12-07T14:00:00","guid":{"rendered":"http:\/\/ec2-3-209-223-66.compute-1.amazonaws.com\/?p=1426"},"modified":"2023-12-20T17:27:00","modified_gmt":"2023-12-20T23:27:00","slug":"50-30-20-budgeting-what-it-is-and-how-it-works","status":"publish","type":"post","link":"https:\/\/www.accrediteddebtrelief.com\/blog\/50-30-20-budgeting-what-it-is-and-how-it-works\/","title":{"rendered":"50\/30\/20 Budgeting: What It Is and How It Works"},"content":{"rendered":"\n<p><em>Updated April 14, 2023<\/em><\/p>\n\n\n\n<p>The 50\/30\/20 plan is a popular budgeting method that can help you reorganize your budget. It ensures that you&#8217;re putting money towards your necessities while still allocating an appropriate amount of cash toward your savings and simple pleasures.<\/p>\n\n\n\n<!--more-->\n\n\n\n<p>If you\u2019ve tried to create a budget in the past, you may have struggled with prioritizing your expenses. Needs like food, shelter and utilities are likely at the top of your list, but is a new pair of jeans more important than putting money towards your emergency fund? Should <a href=\"https:\/\/www.accrediteddebtrelief.com\/medical-debt-relief\/\">medical bills<\/a> or car payments come before <a href=\"https:\/\/www.accrediteddebtrelief.com\/credit-card-debt-consolidation\/\">credit card debt<\/a>? Is it okay to squeeze in a latte if you\u2019re still paying down your college debt? The 50\/30\/20 budgeting method can help you decide. <\/p>\n\n\n\n<p><strong>Quick Links<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"#What-Does-50\/30\/20-Stand-For?\">What Does 50\/30\/20 Stand For?<\/a><\/li>\n\n\n\n<li><a href=\"#How-To-Use-the-50\/30\/20-Rule\">How To Use the 50\/30\/20 Rule<\/a><\/li>\n\n\n\n<li><a href=\"#dentifying-Must-Haves,-Wants-and-Savings\">Identifying Must-Haves, Wants and Savings<\/a><\/li>\n\n\n\n<li><a href=\"#50\/30\/20-Budget-Examples\">50\/30\/20 Budget Examples<\/a><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Where Does the 50\/30\/20 Rule Come From?<\/h2>\n\n\n\n<p>The 50\/30\/20 rule was first coined as the \u201cBalanced Money Formula\u201d in the 2005 book, <em>All Your Worth: The Ultimate Lifetime Money Plan<\/em>. U.S. Senator Elizabeth Warren, who is a bankruptcy and personal finance expert, co-authored the book with her businesswoman and management consultant daughter, Amelia Warren Tyagi.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"What-Does-50\/30\/20-Stand-For?\">What Does 50\/30\/20 Stand For?<\/h2>\n\n\n\n<p>Warren and Tyagi\u2019s Balanced Money Formula breaks down all spending into three categories: Must-Haves, Wants and Savings. The authors suggest that individuals balance their spending and savings as follows:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Must-Haves: 50%<\/li>\n\n\n\n<li>Wants: 30%<\/li>\n\n\n\n<li>Savings: 20%&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>\u201cTesting yourself against the Balanced Money formula is a little like checking your cholesterol against the recommended levels,\u201d Tyagi and Warren write. \u201cIt helps you flag when something is wrong, and it shows you where you need to take a closer look at your money choices.\u201d<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"606\" height=\"737\" src=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_PieChart.jpg\" alt=\"Example of 50\/30\/20 Rule - Pie Chart\" class=\"wp-image-1428\" title=\"Points scored\" srcset=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_PieChart.jpg 606w, https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_PieChart-247x300.jpg 247w, https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_PieChart-312x380.jpg 312w\" sizes=\"auto, (max-width: 606px) 100vw, 606px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"How-To-Use-the-50\/30\/20-Rule\">How To Use the 50\/30\/20 Rule<\/h2>\n\n\n\n<p>The Balanced Money Formula is simple to remember and put into action. We\u2019ve broken it down into five steps:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Calculate your take home pay.<\/strong> Include any <a href=\"https:\/\/www.accrediteddebtrelief.com\/blog\/side-work-and-freelancing-advice-from-side-hustlers\/\">side work or freelancing<\/a> income. If your finances are combined with a partner, be sure to include their income as well.<\/li>\n\n\n\n<li><strong>Build your budget.<\/strong> Where is your money going? Track all of your monthly bills and recurring expenses. For any monthly expenses that vary from month to month, such as groceries and utilities, an average estimate is fine.<\/li>\n\n\n\n<li><strong>Limit your Must-Haves to 50% of your budget.<\/strong> This category may seem difficult to make cuts in, but many things that we think are Must-Haves aren\u2019t true \u201cmusts\u201d. Warren and Tyagi suggest that you ask yourself the following questions to determine if something qualifies as a Must-Have: \u201cCould you live in safety and dignity without this purchase (at least for a while)? If you lost your job, would you keep spending money on this? Could you live without this purchase for six months?\u201d<\/li>\n\n\n\n<li><strong>Dedicate at least 20% of your take home pay towards Savings and debt repayment. <\/strong>If you\u2019re having trouble with this category, don\u2019t throw in the towel just yet. Tyagi and Warren note that \u201cthe money will already be there\u201d once you\u2019re able to get control over your Must-Haves and Wants.<\/li>\n\n\n\n<li><strong>Allocate the last 30% for the Wants in your budget. <\/strong>While Tyagi and Warren caution those who spend more than 30% in this category, they also warn against underspending. \u201cLife needs to have space just for fun; get into a place where there is room for a little more enjoyment,\u201d they recommend to those spending less than 20% on Wants.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"dentifying-Must-Haves,-Wants-and-Savings\">Identifying Must-Haves, Wants and Savings<\/h2>\n\n\n\n<p><strong>Must-Haves<\/strong> are \u201cthe things you will have to pay no matter what,\u201d like food, rent, utilities, necessary transportation and medical needs. \u201cCan\u2019t-escape legal obligations,\u201d such as child support, long term contracts and student loans, also fit under this category. While it may seem like a larger percentage of your budget could be dedicated to this part of your budget, the authors argue that 50% is ideal because it\u2019s sustainable. They also note many disability insurance and unemployment insurance policies cover roughly 50% of one\u2019s salary. Under this budgeting plan, you\u2019ll still be able to cover the basics if you\u2019re not able to work.<\/p>\n\n\n\n<p><strong>Wants<\/strong> are the \u201ctreats and extras,\u201d including vacations, hobbies, charitable donations, non-necessary clothing and entertainment. While this is a fairly broad category, Warren and Tyagi warn that it should have a hard limit of 30%. Additionally, should you find yourself in a situation where you need to make fast cuts, the Wants should be the first things to go.&nbsp;<\/p>\n\n\n\n<p><strong>Savings<\/strong> are both investments in the future and payment towards debt. These include things like your emergency fund, <a href=\"https:\/\/www.accrediteddebtrelief.com\/blog\/should-you-save-for-retirement-when-you-have-credit-card-debt\/\">retirement savings<\/a>, money for a future down payment, credit card debt and medical bills. Warren and Tyagi recommend that you dedicate 20% of your budget to this category.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"50\/30\/20-Budget-Examples\">50\/30\/20 Budget Examples<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Example A: Melissa<\/h3>\n\n\n\n<p>Melissa is a single person who works and lives in a larger city. After taxes and deductions, Melissa takes home about $3,000 a month. Breaking down her current spending habits, her money splits as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"606\" height=\"220\" src=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleAGraph.jpg\" alt=\"\" class=\"wp-image-1430\" srcset=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleAGraph.jpg 606w, https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleAGraph-300x109.jpg 300w\" sizes=\"auto, (max-width: 606px) 100vw, 606px\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"606\" height=\"737\" src=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleA_PieChart.jpg\" alt=\"\" class=\"wp-image-1431\" title=\"Points scored\" srcset=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleA_PieChart.jpg 606w, https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleA_PieChart-247x300.jpg 247w, https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleA_PieChart-312x380.jpg 312w\" sizes=\"auto, (max-width: 606px) 100vw, 606px\" \/><\/figure>\n\n\n\n<p>Melissa is almost at 30% spending with her Wants, but her Must-Haves and Savings are out of balance. While Must-Haves are the \u201ccan\u2019t live without\u201d parts of the budget, that doesn\u2019t mean she can\u2019t reduce her costs. For example, Melissa needs a roof over her head and a way to get to work, but $1,500 rent on a two bedroom apartment and spending an average of $300 a month on gas and car expenses isn\u2019t ideal. She could reduce her Must-Have spending by splitting rent costs with a roommate and swapping her car for public transportation. The money she saves can be redirected towards her budget\u2019s Savings category.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Example B: James and Stacy<\/h3>\n\n\n\n<p>James and Stacy are a married suburban couple who are both moving up the corporate ladder. Together, their take home pay is roughly $6,300 a month. After examining their budget, they notice that their spending breaks down as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"606\" height=\"220\" src=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleBGraph.jpg\" alt=\"\" class=\"wp-image-1432\" srcset=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleBGraph.jpg 606w, https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleBGraph-300x109.jpg 300w\" sizes=\"auto, (max-width: 606px) 100vw, 606px\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"606\" height=\"737\" src=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleB_PieChart.jpg\" alt=\"\" class=\"wp-image-1433\" title=\"Points scored\" srcset=\"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleB_PieChart.jpg 606w, https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleB_PieChart-247x300.jpg 247w, https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/503020Budgeting_ExampleB_PieChart-312x380.jpg 312w\" sizes=\"auto, (max-width: 606px) 100vw, 606px\" \/><\/figure>\n\n\n\n<p>Stacy and James are closer to 50\/30\/20 than Melissa, but they can still make improvements. Their Must-Haves are under 50%, which gives them plenty of room for Wants and Savings, but they aren\u2019t hitting the Savings goal of 20%. If they can cut about $300 from their Wants and dedicate it towards Savings, they\u2019ll still have plenty of money to spend on fun things while paying down their debt and saving for their future.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">When To Deviate From 50\/30\/20<\/h2>\n\n\n\n<p>While the \u201cBalanced Money Formula\u201d can help individuals prioritize their money, Warren and Tyagi do note specific examples of when it\u2019s okay to stray from or adjust their formula. Here are some examples:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Whenever you experience a reduction or loss of income, a higher percentage of your budget should go towards Must-Haves.<\/li>\n\n\n\n<li>If you work seasonally or as an independent contractor, you might put more towards Savings to prepare for times when you have a lower income.<\/li>\n\n\n\n<li>If you\u2019re retired and have paid off your mortgage, you may be able to redirect more of your Must-Haves money towards Wants.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Start Using the 50\/30\/20 Budget<\/h2>\n\n\n\n<p>Making small adjustments to your spending and saving habits now can greatly improve your financial future. The 50\/30\/20 formula is a great tool that can be used in combination with other budgeting strategies.<\/p>\n\n\n\n<p>Not sure where to begin with building a budget or saving for emergencies? Check out these helpful articles:<\/p>\n\n\n\n<div class=\"wp-block-columns\">\n<div class=\"wp-block-column\">\n<figure class=\"wp-block-embed is-type-wp-embed is-provider-top-dollar wp-block-embed-top-dollar\"><div class=\"wp-block-embed__wrapper\">\n<blockquote class=\"wp-embedded-content\" data-secret=\"okMnu0ng6q\"><a href=\"https:\/\/www.accrediteddebtrelief.com\/blog\/why-you-should-have-an-emergency-fund\/\">6 Tips To Save For An Emergency Fund<\/a><\/blockquote><iframe loading=\"lazy\" class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;6 Tips To Save For An Emergency Fund&#8221; &#8212; Top Dollar\" src=\"https:\/\/www.accrediteddebtrelief.com\/blog\/why-you-should-have-an-emergency-fund\/embed\/#?secret=r8UgXihYeY#?secret=okMnu0ng6q\" data-secret=\"okMnu0ng6q\" width=\"500\" height=\"282\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe>\n<\/div><\/figure>\n<\/div>\n\n\n\n<div class=\"wp-block-column\">\n<figure class=\"wp-block-embed is-type-wp-embed is-provider-top-dollar wp-block-embed-top-dollar\"><div class=\"wp-block-embed__wrapper\">\n<blockquote class=\"wp-embedded-content\" data-secret=\"dMVfDNFvBR\"><a href=\"https:\/\/www.accrediteddebtrelief.com\/blog\/start-budgeting-with-our-free-worksheet\/\">Start Budgeting With Our Free Worksheet<\/a><\/blockquote><iframe loading=\"lazy\" class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;Start Budgeting With Our Free Worksheet&#8221; &#8212; Top Dollar\" src=\"https:\/\/www.accrediteddebtrelief.com\/blog\/start-budgeting-with-our-free-worksheet\/embed\/#?secret=Seehb5Ie9x#?secret=dMVfDNFvBR\" data-secret=\"dMVfDNFvBR\" width=\"500\" height=\"282\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe>\n<\/div><\/figure>\n<\/div>\n<\/div>\n\n\n\n<p>For more information about the 50\/30\/20 plan, check out <a href=\"https:\/\/bookshop.org\/books\/all-your-worth-the-ultimate-lifetime-money-plan\/9780743269889\" target=\"_blank\" rel=\"noreferrer noopener\"><em>All Your Worth: The Ultimate Lifetime Money Plan <\/em>by Elizabeth Warren and Amelia Warren Tyagi<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Updated April 14, 2023 The 50\/30\/20 plan is a popular budgeting method that can help you reorganize your budget. It ensures that you&#8217;re putting money towards your necessities while still allocating an appropriate amount of cash toward your savings and simple pleasures.<\/p>\n","protected":false},"author":3,"featured_media":1427,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","footnotes":""},"categories":[69],"tags":[],"class_list":["post-1426","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-budgeting"],"accredited":{"author":{"name":"Mikaela Sullivan","url":"https:\/\/www.accrediteddebtrelief.com\/blog\/author\/msullivan\/"},"categories":[{"name":"Budgeting","slug":"budgeting","url":"https:\/\/www.accrediteddebtrelief.com\/blog\/category\/budgeting\/"}],"thumbnail":"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/12\/820x312_ADRBlog_503020Budgeting.jpg"},"acf":{"edited_by":"","reviewed_by":"","fact_checked_by":""},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>50\/30\/20 Budgeting: What It Is and How It Works | Top Dollar<\/title>\n<meta name=\"description\" content=\"Is your budget balanced? 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