As it is the start of a new year, many people began to get their minds refocused on all-things-budgeting. I love starting of the new year right with organized finances, and I want to show you that it is not hard at all with the right framework! The framework that I’m referring to is the 50/30/20 Budget.
I’ve been using this method to track my expenses for several years, and it is just so easy to follow! In this post I’ll explain what this budget is, how to use it, and provide a FREE 50/30/20 budget spreadsheet and calculator that you can use to get started right away!
The 50/30/20 Budget Spreadsheet
If you just want the download and don’t want to wait until the end – you can grab your 50/30/20 spreadsheet below. It includes both the 50/30/20 budget template and calculator. For more information / instructions – keep reading!
Why Set a Budget?
Maybe the most important question of them all, as I’ve mentioned in this post . For those of you who have been following me for a while, you may wonder why I’m focusing on this topic at all. As part of my (in-progress) re branding, I’ll be incorporating some money tips from time to time, as it is a major factor in traveling as much as possible.
If you know where your money is going and track expenses, you are put in a position where you can allocate your money to the things you like to do too. And if you stick to your budget, you are very likely to hit still hit your savings targets / reduce debt without any issues. Isn’t that a place where we all want to be? The 50/30/20 budget spreadsheet that I’ll provide in this post will help you do just that.
The 50/30/20 Budget Explained
The 50/30/20 Budget is one that was made popular by the book “All Your Worth: The Ulitmate Lifetime Money Plan”, written by Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi. The intention of this book is to help the reader master their finances by allocating a set percentage to three categories of money:
50% – Needs or Must-Haves
The “needs” are the items that you have to purchase in order to survive and those bills that you have to pay off each month. This may vary a bit from person to person, but here are a few examples:
- Rent / Mortgage / Car Payments
- Health Insurance
- Minimum Debt Payments
Note that this category does not include seemingly related items, such as restaurants, as eating out is not necessary but eating is. Keep that in mind as you make the budget your own.
30% – Wants
The “wants” category includes all the expenses you make to enhance your quality of life. Example categories include:
- Entertainment (Movies, concerts, etc.)
- Cable TV
- Eating Out
- Travel 😉
This category will vary the most as “wants” are very particular to the individual. Add what’s most important to you here when you personalize your spreadsheet.
RELATED: How to Budget for Travel
20% – Savings / Debt
This category is entirely devoted to increasing the size of your bank accounts. The smallest of the three categories, this one includes the following:
- Saving Accounts (Includes building an emergency fund)
- Retirement Accounts
- Investments (ETFs, Stocks, Real Estate, etc.)
- Debt Repayment (Anything greater than the minimum)
The last item may seem like it doesn’t fit, but keep in mind that any payments that you make greater than the principal will give you savings in the long run.
Download the FREE 50/30/20 Budget Template and Calculator
So now that you know what the budget is, let’s start taking action to put this budget into use now! In the download below, you’ll access a Google Sheets spreadsheet.
This spreadsheet has two tabs: The first helps you calculate the amount of money that goes into each category, while the second is an automated template that you can use to keep track of your monthly budget.
Note: It does not matter if you are starting in January or December, it’s never to late in the year to start budgeting!
How to Use the 50/30/20 Calculator
The first tab of the spreadsheet includes the 50/30/20 Calculator. To use this form, just add in your total after-tax income, and the rest of the budget will be calculated for you automatically!
If you don’t make a standard income from month-to-month, calculate your average after-tax income for the past three months and add that value to the form.
One thing I’ll add is that while the percentages are a great starting point, you’ll likely have to modify a bit yourself when you start using the spreadsheet. However, this should only be due to circumstances outside your control (e.g., high bills, large debts).
How to Use the Spreadsheet
The second tab of the spreadsheet includes the monthly budget tracker. To use this form, you must first review the categories in each budget group, and update based on your personal expenses. There are open categories (marked other) that you can use to add additional categories, if necessary. If you do need to do this, be sure to make the same updates on the list on the “dropdown” tab so that expenses pull in appropriately.
Once the categories are updated, add in the values for each one. As you do this, make sure your total for each group does not exceed the amounts set on the “50 30 20 Calculator” tab.
You are now ready to start adding your expenses in the “Tracking Expenses” table. The most important thing here is to use the drop down to elect the proper category for each expense. That will pull in each value automatically to the totals on the left-hand side.
If you have questions at any time, feel free to email me at [email protected].
50/30/20 Budget Example : Couple Making $125,000
Now, let’s put this into practice shall we? In our first example, let’s assume there is a couple (John and Mary) that jointly makes $125,000/year (after tax) that lives in Washington, DC. They have 1 daughter that they are raising as well. Using the 50/30/20 budget calculator, here’s what the breakdown of their expenses would be:
|Savings / Debt||$2,083|
Note: For the purposes of this example, let’s assume both are paid monthly.
Needs – 50% of $125,000 Salary
Now, $5,208 may seem like a lot of money, but in DC you’ll find that your dollars don’t go as far as they do in most of the US. Here are some estimations on what her monthly expenses might be:
- Housing: They own a home in the Capitol Hill neighborhood, and pay $3,000/month for their mortgage
- Utilities: For gas, electric, and water, they typically pay $200/month
- Groceries: The family shops at the local Safeway for groceries and spends around $700/month on groceries
- Car Insurance and Maintenance: They only own one car since they live close to public transport, and are done with car payments. They spend about $100/month for insurance, and an average of $12/month for maintenance. (The car is still in good condition.)
- Transportation: Both John and Mary usually take public transportation to work on the bus / subway. During the week, they may also incorporate the use of Uber in the mix, and when driving during the weekend, the usually incur parking fees. They pay a total of $550/month total on transportation costs for their MetroCard, Ubers, gas, and parking fees
- Health Insurance: John’s job provides solid health coverage, and since everyone in the family is healthy, they have opted for a high-deductible spending plan. Cost – $150/month for family coverage (health + dental)
- Childcare Costs: Their daughter is of elementary school age, so their costs are extremely high, but they still set aside $500/ month for any babysitting / childcare costs, as well as extracurricular activities
Total amount spent/month: $5,212 on Needs. Note they are just slightly over by $4.
Wants – 30% of $125,000 Salary
As shown in the prior section, the family has $3,125 to spend on Wants each month. Let’s get into how they may use this bucket of money:
- TV/Internet: The family does not subscribe to cable TV, but does pay $70/month for subscriptions to Netflix, Hulu TV, and HBO Max. In addition, they pay for high-speed internet, since John often works from home. Their internet subscription costs $60/month
- Entertainment: They set aside $200/month for entertainment costs. This includes anything from trips to paid museums, concerts, or local shows (such as those at the Kennedy Center)
- Restaurants: John and Mary plan to eat out about 1x/week as a family and may also pick up lunch during the work week. They spend $600/month on all eating out expenses
- Travel: Exploring new places both in the US and internationally is a high priority for the family. They save $700/month towards travel so that they always have a pool of money to pull from
- Hobbies: Mary is a hobby photographer, and spends around $150/month on new gadgets for her camera
Total amount spent per month: $1,780 on Wants. Note, they have saved $1345/month, let’s see how they make the most of this in the next category.
Savings/Debt – 20% of $125,000 Salary
Let’s get into my favorite category – the one that’s focused on building wealth / getting rich. Please note that John and Mary have no debts outside of their mortgage. As a refresher, the couple has $2,083 allocated towards this bucket:
- High-Interest Savings Account: They have built up their savings to cover 3 months of expenses, and typically add around $200/month to keep it growing
- Retirement Account (401K): The couple puts up to their company match each month into their individual retirement accounts. Both of their companies match up to 6% of their salaries. They spend a total of $625/month towards their retirement account
- Health Savings Account: Since they have a High-Deductible Health Plan, they are eligible for an HSA. As this can be used as an investment account, they opt to max out their investment and add $592/month into the account
- Roth IRA: With the additional money left over from the “Wants” category, John and Mary fully fund their Roth IRAs for the year. They both add $800/month to their accounts
- Taxable Brokerage Account: John and Mary set aside the additional $411/month to invest as they please in ETFs and individual stocks
- Giving: Giving back is important to the couple, and they set aside $800/month towards charitable causes
Total Amount Spent: John and Mary have spent $3,428 in this category, successfully allocating money saved in the “Wants” category to building wealth.
RELATED: 5 Easy Ways to Save More Money
A Few Budgeting Tips
As you build your budget, there are a few important to keep a few things in mind.
- Set realistic goals – Don’t set savings goals that you can’t reach, for example
- Understand your spending habits – As a best practice, it’s a great idea to average out your expenses for the past few months to get a realistic picture of how you spend money. This is particularly useful for informing the “wants” group of your budget.
- Keep track of your expenses regularly – I recommend tracking your expenses at least bi-weekly, and more if you know you are a spender.
- Modify the percentages of each group, if necessary – If you are really focused on paying down debt, for example, you may want to increase the amount of money allocated to the “savings/debt” group and decrease the “wants” group.
Planning for the Year Ahead
Now that you have the information and the tools you need to start your 50/30/20 Budget, get started tracking your budget today! Once you know where you money is going, you will be amazed how you can refocus your expenses on the things that you want to do or the places that you want to go.
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