Budge over, people and make room for a new budget analysis tool! When my family’s income lost a zero in it a few years back, we had to make some cuts, shifts, and changes to our spending levels. In researching new ways to analyze it, I came across the 50/30/20 rule and wanted to share out how it worked for me.
From what I can tell based on an origin search, it was first introduced on the website of National Debt Relief back in 2013 and then since recirculated in the blog atmosphere with many opinion pieces. Basically, the rule of thumb states that 50% of your net income (i.e. post taxes) should go to necessities, 20% to goals, and 30% discretionary. It isn’t a hard and fast mandate, but more of a judgment lens from which to view and tweak your habits.
50/30/20 Case Study
This tops down approach to classifying where the money goes makes theoretical sense as a guide post, so I decided to bounce it up against my own current (and tight) plan; here’s how that turned out now…65/35/5. Out of curiosity, I redid the arithmetic with our old (and lucrative) plan; that yielded….30/40/30. In either case, my buckets were off from the idealistic 50/30/20. However – coincidentally, if I weighted average both sets came closer; the math was … 40/35/25. What about you; where did your sums shake out?
The takeaways I’ve learned from this brief examination is that the amount of funds you are dealing with matters as it’s the base or reference point for all calculations. In other words, the more moola you have the easier it is to have these percentages fit the bill. Regardless, I’m a fan of any fiscal plan. So, make a budget now (any budget will do to start) to tell your money where to go so that you aren’t wondering where it went!