50/30/20 is about maximum simplicity and minimal uncertainty especially for those new to budgeting or renewing a commitment to taking care of their personal finances. These numbers serve as rules of thumb that can help you get started budgeting.
50/30 for needs and wants are maximum numbers. Ideally you will spend less on those categories and save more, but everyone budget is different and it’s okay to adjust these guidelines to suit your context.
50% of your income goes to needs
Take care of the essentials like utilities, transportation, housing, and food.
30% of your income goes to wants
Indulge in a little travel, recreation, and style.
20% of your income goes to savings
Save in your preferred vehicle be it a 401k, IRA, or simply building up 3-6 months expenses in an emergency fund.
If you’re not sure where to save, just start a separate bank account and automatically transfer the savings you want to it each month. You can use the next couple months to decide how best to invest or save the cash as you take steps on your budgeting journey. Taking the first step to make sure you’re saving money is the most critical step.
Some versions of this budget concept will say any debt payments or service (outside of a mortgage) belong in the 20% savings category, but you will put yourself into a poor future financial state if you stay in that zone for long.
If you have high interest credit card or other consumer debts, you NEED to be rid of it. Eliminate those, save a $1000 or so for an emergency buffer, and then start saving money. If your first savings target is small and not ‘retirement’ that’s OK. The most important thing is to get started.
If you want to get started budgeting you can checkout our Google Sheets budget template that showcases the 50/30/20 concept or if you prefer your budgets come with a little automation you can signup for the Keepify budgeting app.