Utilities include your water, electricity, trash services, and gas/propane.
If you’d like to lower your food spending, check out these 10 cheap meal plans.
The food category includes regular groceries, and can include eating out (or this can be part of recreation or personal spending). This category also includes any investing you’d like to do. This savings category includes short-term and long-term savings, like emergency funds, sinking funds, and a house nonpayment. According to Dave Ramsey, this category is necessary to have, even if you’re in debt or have other investing/savings goals. This giving category is for things like tithing and giving to charity. Now that you know what categories are included and what percentage of your income you should be spending in each category, let’s go over each one in more detail. Having a vision and goals for what you want to accomplish and then setting up a budget or spending plan to help get you there.5 Sources Dave Ramsey’s Recommended Budget Categories I like that savings is one of the three cores as it lends itself to the “pay yourself first” mentality.Īt the end of the day, being intentional with your money and how you spend it is the most important thing. The 50/30/20 rule is a good way to gauge if you are taking care of the big important financial goals. I think it’s more of a tracking measurement used to create boundaries around how you spend your money. Although, I’d hesitate to call it budgeting. If you’ve tried zero based budgeting or the YNAB method of giving every dollar a job, and finding it much too cumbersome, perhaps the 50/30/20 rule of thumb budgeting method works better for you. Notice there is $350 in an “other” category in the “Wants” section. This a slightly more detailed budget, but I think that a young couple who didn’t have kids should be able to make something like this work. The 50/30/20 Rule Applied to a $5,000 / Month Budget
Other savings goals would be emergency fund, retirement savings, larger investment goals, paying off the mortgage, etc. The more wants you cut out and the higher your savings rate, the quicker you can get out of debt and move on to the next goal. This would be referred to by Dave Ramsey as “gazelle intensity,” where the goal (intensity) would be to increase the 20% of savings to as high of number as possible, even if that means robbing from your “wants” 30% category. If you can put 20% of your income toward savings, and you have debt, it would be wise to pay off the debt first with that 20%. This seems to fall a little bit in line with the baby steps. 20% of Income Toward Savings Goals or Debt Repayment You’ll have to be honest with yourself on these to make the 50/30/20 rule work. If I lost my income, could I live without these items on a monthly basis?Īgain, we humans try to justify our way through our budget categories until 100% looks like needs. You should be able to live without them, or to put it into another question:
Those items that didn’t fit into the needs (50%) bucket should probably go into the wants (30%) bucket. This category should remain at 50% of your take home pay. And you’ll have to decide what’s right for you in your situation. Some of those are easier judgments to make than the others. And we all have a tendency to blindly force some wants into our needs column.Ī question to ask yourself to help distinguish between needs and wants would be: If I remove this thing from my needs column will it significantly impact my quality of life? My needs and your needs might be a little different, but our wants vary widely. It’s probably what keeps most people from completing or sticking to this kind of budgeting. Quality of life seems to be the measurement by which you determine a need vs. 5 and you get the amount of money you should be spending on your needs. Starting with your net take home pay, multiply that by. So, what is the 50/30/20 method of budgeting and how can you use it to help you make better financial decisions? 50% of Income Toward Needs and/or Necessities The 50/30/20 rule of thumb budgeting was (as best as I can tell) made popular by Elizabeth Warren and Amelia Warren Tyagi in their book “All Your Worth: The Ultimate Lifetime Money Plan.” I have not read the book, but have read various reviews and opinions of the 50/30/20 concept as a framework used in creating a macro level budget with appropriate allocation toward your needs, wants, and savings. If listing out a laundry list of budget categories isn’t your cup of tea, perhaps you could consider budgeting using the 50/30/20 rule of thumb. A traditional zero-based budget (something I personally use) is a complete list, to the penny spending of all your take-home income.
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