Budgeting 50/30/20 Rule
The 50-30-20 rule was repopularized in the late 2000s, by U.S. Senator Elizabeth Warrens's book, All your Worth. The rule divides your income after tax by 50%, 30%, and 20%. 50% (Needs), 30% (Wants), and 20% (Save debt payoff).
First, categorize all your monthly expenses into three categories, Needs, Wants, and Save.
Needs(50%) are things that you can not live with or will prevent you from providing for your family. Needs could be and are not limited to only food, shelter, transportation, health, rent, utilities, child care, insurance, etc.
Wants(30%), "wants are not needs!". Wants not needs improve your quality of life. Your subscription to Netflix, Disney, Amazon, those pairs of shoes you have been eyeballing, go-pro, cars that have a payment, etc.
Savings(20%) this is the contributions to your Roth IRA, emergency fund (both the 1,000 in cash and 3-6 month expenses), and extra debt payoff.
I think that the 50/30/20 works in a perfect world, but not in the real world. If you are in debt "over your means" and with no hope of paying it off. You may want to consider a different method. With interest not decreasing in the foreseeable future, getting rid of debt and saving is even more essential than ever.
That's why I don't 100 back this type of budgeting. I love the idea of saving at least 20% of your pay, which may not be doable for your current situation. All budgets have to be able to flow as if every dollar has a purpose. Just because our wants may have 30% of the budget doesn't mean it should increase the Savings. Plan a trip if that's what it takes for you to save budget it.
The best situation, is what if there is no rent or mortgage? Should you find more needs to fill the void of the 50%? No, this should be adjusted to what your goals are. Being debt free is an achievable goal. Now make your budget match that goal.
Saving is the most important thing that too many Americans are not doing. We are always three meals away from a disaster, and if an emergency happened would you be covered, or would you just add it to the stack of debt you have?
I recently read a book called The Richest Man in Babylon, by George Clason. He talks about lessons that have stood true for thousands of years and were found in an archeological dig on clay tablets. One of those lessons was to pay yourself 10% before anything else. Are you paying yourself? There are many other lessons to be learned, but that lesson alone would save much heartache.
Also, George points out that don't follow advice from those who don't know what they are talking about. Or advice from those who seek to steal with the promise of unrealistic gains. Wise advice I recommend this as a read for those interested in getting their minds in a good place it has solid advice for all to follow.
That is advice your Lyft Driver would give you. I will share another budget next week and if you want a sneak peek, go look at Dave Ramseys, zero-based budget.
The Richest Man in Babylon. (n.d.). Google Books. Retrieved November 5, 2022, from https://www.google.com/books/edition/The_Richest_Man_in_Babylon/GSiIEAAAQBAJ?hl=en
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