How to budget using the 50/30/20 method
This is a great strategy for anyone who wants an easy and structured budgeting method.
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To achieve our financial goals, we need to know where our money is going. This is why having a budget is so important.
What’s even more important is to find a budget that matches your personality.
The 50/30/20 budget method is ideal for people who like tracking expenses and want to follow a guideline.
Although it’s called the 50/30/20 method, you can change the percentages so they work for you.
Here’s how it works:
Think of your money as going into three different buckets.
Bucket number one is for your needs. 50% of your take-home pay goes towards your essential expenses like housing, groceries, transportation, utilities and other general expenses. Try your best to keep your needs to around 50% of your budget.
Bucket number two is for your wants. 30% of your money should go towards travel, subscriptions, and discretionary things like dining out with your family and friends. Try to keep your wants to 30% of your budget.
Finally, bucket number three is for your savings and also for paying down debt. This remaining 20% of your money can go towards an emergency fund, investing for retirement, paying down loans, or really any other financial goals you may have.
So, 50% for your needs, 30% for your wants, and 20% for your savings. That’s the 50/30/20 budget.
Most importantly, feel free to personalise it! 50/30/20 is just a guide.
You can vary the percentages and create a plan that works with your income and your obligations.
You might just be starting your savings journey ... and 20% may seem unattainable. Or maybe you can save more than 20%, and that's also great. What matters is that it needs to work for you.
The bottom line
The 50/30/20 method is a solid strategy for you to organise your cash flow.
You make progress towards your goals with your savings, but also enjoy the journey with your wants.
Vanguard
October 2023
vanguard.com.au