The 50-30-20 Rule Approach To Budgeting

Estimated reading time: 11 minutes

Master the art of budgeting with the 50/30/20 Rule. Find out how this earning, saving, and spending approach can provide financial stability and success.

Financial Success Using The 50/30/20 Rule

Budgeting using the 50/30/20 Rule is one of the simplest ways of budgeting for new kids on the financial block.

You may also know this as the 50/20/30 Rule of budgeting, which is a balanced approach to savings, debt, and survival.

This budget attack plan became popular after Senator Elizabeth Warren published her book All Your Worth: The Ultimate Lifetime Money Plan.

Some people who have been budgeting for years continue to use this success formula even after they become debt-free.

Why? Because it works for them, why change something that works?

With any budgeting system, the core values of it have to be that you are earning, saving, and spending.

Those three are a reality for everyone regarding their net income.

However, if you stop considering budgeting, you’ll realize it’s simply an automatic standardization system.

By this, I mean it’s a means to get the user to pay attention to where their money is going and understand why.

It also teaches users how to make improvements and whether they are paying down debts fast enough and saving enough for their future.

Essentially, you’re creating a book of your present and future life, so make sure it’s a journey worth walking.

Is The 50/30/20 Rule Budget For Us?

Dear Mr.CBB,

We’ve been struggling financially since COVID-19, as I’ve been laid off and working with limited money.

My wife continues to work from home, earning her total income, for which we are thankful.

Currently, we are living on a tight amount of money, but all the bills are getting paid.

It scares us, and we know we need to do something before it gets any worse.

We talked last night and decided to start budgeting, but we don’t know where to start.

I’ve been following your blog for a while now out of curiosity since I discovered you were debt-free.

In a way, I’m jealous, but I also want to know what I need to do to achieve this success for my family.

I’ve researched different budgets and found the 50/30/20 Rule, which seems easy enough.

• What are your thoughts about this budget?
• Have you used the 50/30/20 budget?
• Where should we begin with our budget in terms of education?

Thanks for any help.

C and R

Alberta, Canada

Thanks for your questions, C and R from Alberta, Canada.

Beginning A Budgeting Journey

When we started the budgeting journey around mid-2011, we started using our bank account for tracking.

We would track what was going in and out, and as you know, this is not even close to budgeting.

It’s incredible looking back; what we thought we were doing was right, but we all make mistakes.

I’m here to tell you we’ve been where you are.

We’ve had tonnes of debt, paying bills on minimum wage, lost a job, and suffered severe health issues.

Sometimes, we think if it could happen to us, it has; however, we’ve successfully made it through the fire.

That’s why we needed to share our journey on this blog to let others know it is possible to become debt-free.

When this blog began, we were still paying our mortgage and sharing our monthly budgets for our readers.

At first, we were skeptical about whether to share our financial information, but it has proven to help so many people.

It was tough, especially when we wanted to go on holiday but chose to go on short road trips in the summer.

We gave up many significant things to pay off our mortgage in 5 years, and it was worth it from start to finish.

Finding The Right Budget

The budgeting system we use is the zero-based budget. However, there are no complex rules on what budget to use for success.

The important part is that you are budgeting or using some financial system that is, at minimum, tracking four things:

1. Net Income
2. Expenses
3. Debt Repayment
4. Savings

There are many types of budgets, but one of the favorites is the 50/20/30 Rule of budgeting.

We have never used the 50/20/30 budget, but it is highly sought-after for its simplicity.

It’s only fair that I’m transparent on this blog because you want to learn from someone truthful.

I can tell you this type of budget might work for you.

The only way to determine whether a budget fits your lifestyle is to try it out and see what happens.

We didn’t jump into our Excel budget spreadsheet without first as we transitioned from a paper budget.

For example, you could try a cash budget or budgeting using jars only to find out they worked, but you want more.

Wanting more means, you’ve mastered the simple budget and want more financial data.

For example, if you want to know exactly how much money you spend on groceries every month or for the entire year, you can do that with an Excel budget.

Perhaps you want to know how much money you paid back in credit card debt or set aside for savings throughout the year.

Having data such as this at your fingertips may motivate you to continue building your financial empire.

The 50/30/20 Rule Explained.

Tracking is critical; no matter your budget, building a budget binder of tracking sheets is worthwhile.

Next to the basic bare-bones budget, the 50/20/30 Rule offers three rule sections.

•  #1 Rule uses 50% of your Net Income towards your Needs.
• #2 Rule uses 20% of your Net Income towards your Savings.
• #3 Rule uses 30% of your Net Income towards your Wants.

Let’s break this budgeting system down further to give you more insight.

50% Needs of the 50/30/20 Rule

You have $1000 to spend in this category of your $2000 net income using 50%.

The equation follows: Net Income $2000 x 0.50 = $1000.

Let’s talk about what needs are when it comes to your budget.

You must pay for monthly needs, no matter what, to survive.

Using 50% of your net income or after-tax income on your needs is part of this budget rule.

For example, if you net $2000 a month, then 50% of that is $1000 and must go towards your needs.

Spending More Than 50% On Needs

If you spend more than 50% on your needs, you must do one of two things.

• Earn more money
• Lower expenses

These needs won’t impact your quality of life, and you can find ways to save money while lowering your expenses.

For example, you can use coupons, cashback offers, coupon apps such as Checkout51, or the Flash Food App with groceries.

My favorite thing when I was living in the UK was using the Nielsen Home Scan Canada program to earn points towards gift cards or other items.

I bought a new refrigerator with my points just before I moved to Canada.

It helped sell my house faster with a new kitchen that I installed from Ikea and a new mini-fridge.

The idea is to target what you can change, including your lifestyle, especially if it’s costly.

Owning that big house might not work for your budget so you might consider downsizing.

If the vehicle costs too much to maintain and the monthly payments are too high, sell it and buy something economical.

The 50% needs category might include the following;

• Housing, including property taxes
• Food
• Basic Utilities (Gas, Hydro, Water, Water Heater rental, etc.)
• Vehicle Payment/Bus Pass
• Debt Repayment (minimum payment)
• Insurance such as house insurance, tenant insurance or life insurance
• Prescriptions and Healthcare

So you’ve spent $1000 of your $2000 net income in the needs category. 

You have $1000 left to spend in the savings and wants category of the 50/30/20 rule budget.

30% Of The 50/30/20 Rule For Wants

You have $600 to spend in this category of your $2000 net income using 30%.

The equation goes like this: Net Income $2000 x 0.30 = $600.

This is the category that you can make changes to because they are non-essential to your budget.

Wants are simply things you desire to have but can still survive without them.

For example, if your Needs category is too high and you need money, then this is where it will come from.

You’ll simply be using money from one bin to put it into another, so you must balance your budget.

As mentioned above, you must evaluate your lifestyle and change it to what you can afford.

• Concert Tickets, Sports tickets, Car show tickets, etc.
• Summer fun tickets for the family (Great Wolf Lodge, Wonderland, Toronto Zoo, Niagara Falls, etc.)
• Participating in sports teams
• Road Trips
• Travelling for Leisure
• Eating Out at restaurants or fast food
• Buying high-end foods you don’t usually buy
• Splurging on a new outfit or pair of shoes
• Buying gadgets, tools or other items you can get away with doing without
• Gym membership
• Magazine subscriptions
• Online subscriptions (Amazon Prime, Netflix, Spotify)
• Television, the Internet, Telephone, Mobile Phone

20% Savings and Debt Repayment

You have $400 to spend in this category of your $2000 net income using 20%.

The equation goes like this: Net Income $2000 x 0.20 = $400.

This part of the 50/3020 budgeting rule is meant for investing in your retirement.

You may want to consider contributing to;

• Registered Retirement Savings Fund (RRSP) 
• Tax-Free Savings Account
• Stocks
• Registered Education Savings Plan (RESP)

Save the money as cash in the bank to build your emergency savings or pay extra on your credit cards or mortgage payments.

If you still have a student loan, this is where you will want to add extra to that debt to crush it faster.

If your employer has a retirement program that matches a certain percentage, take advantage of that, too.

The idea is to balance this 20% so it works the smartest for you financially.

Final Thoughts 50/30/20 Rule of Budgeting

I think this way of budgeting is excellent for beginners who want to get their feet wet.

It’s a system where you plant the seeds with your net income (take-home pay), and with each step, you grow toward debt freedom.

At least, that’s how I see it, although I view almost every budget in this sense as the primary goal: to get rid of debt.

However, spending 30% of my net income on ‘wants’ is a bit much.

I’d spend more time-saving money and paying off debt to live debt-free.

The good thing about this type of budget is that you can allocate percentages of how you see fit.

For example, you might want to do a 60/20/40 or a 70/10/20 budget.

So 70% for Needs, 10% for Wants, and 20% for Savings and Debt Repayment.

Lastly, for C and R, I suggest educating yourself on budgets by reading my 10-Step Budget Mini-Series.

It’s jam-packed and full of information we used along our journey to debt freedom.

I trust you will find bounties of information that will help you get started.

Testing whether this 50/30/20 Rule will work for you is the only way to know.

Good luck.

Discussion: Have you used the 50/30/20 budget rules before, and what did you think of it?

I’d love to read your comments and experiences, so please leave them below.

Mr.CBB

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