There are many different approaches to budgeting.* Some of them can appear super complicated or intimidating but it doesn’t mean that’s the only way to get the job done!
From my experience in working with a lot of people, the best approach to budgeting is to use the one that you can easily learn and realistically stick to.
It is important to know what the whole purpose of a budget is, which is solvency! (Not spending more than you make!)
I find that the 50/30/20 Rule is especially easier on beginners! So if you were looking for a way to get started on budgeting, this article is for you!**
Sen. Elizabeth Warren and Amelia Warren Tyagi
This whole concept originated from Sen. Elizabeth Warren and her daughter Amelia Warren Tyagi who wrote their book, “All Your Worth: The Ultimate Lifetime Money Plan”.
50% for Needs
30% for Wants
20% for Savings & Debt Repayment
This is with after-tax dollars by the way. So, let’s break each category down!
Needs may include:
Groceries
Mortgage or Rent
Health necessities
Wants may include:
Electronics
Vacations
Take Out or Dining Out
Clothes
Entertainment
and anything that isn’t necessary for survival and sort of “nice to have”
Savings and Debt may include:
Retirement
Emergency Fund
Saving up for a major purchase like a house or car
College Fund
All loans & Credit Cards
Keep in mind you can adjust the percentages and what items fall into which category depending on your personal situation.
One other thing worth mentioning, regarding expenses, is that you can only reduce is so much to a point where it impacts quality of life. I have found that some people get so focused on this to the point where they overlook the angle of increasing their income. A side gig, asking for a raise, applying for higher compensation position are some ideas to think with. This of course depends on your personal circumstances.
Try using the 50/30/20 Budget Approach and see how it works for you!
*For education purposes only. This is not financial, legal or tax advice. Consult the appropriate professional before implementing a strategy to make sure you find the right solution for your specific needs.
**Concept came from “All Your Worth: The Ultimate Lifetime Money Plan” by Elizabeth Warren & Amelia Warren Tyagi
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