How the 50/30/20 budget plan works for us

Budgeting is hard, whether you have a lot of money or only a little. There are plenty of financial experts who will tell you what you should be doing with your money. I want to talk about what we do and how it works in real life. This is how I use the 50/30/20 budget plan.

 

Disclaimer: I’m not one of those financial experts. Please consult the pros for your own personal circumstances. My advice is just that – advice.

My family budget plan

Let’s talk about money!

Okay, that’s often a taboo topic. Even if you’re curious about how much money another person makes or spends, finding out the details can be awkward. Especially if it’s a friend.

Yes, I think of my readers as my friends.

So instead of giving you the nitty-gritty details of my bank account, I’m going to use the national average for income. What I will tell you is what percentages of our income we spend on stuff.

According to the last few US Censuses, the average American family makes about $50,000 annually. That’s the number we will use in the math below since it’s a nice round number.

The 50/30/20 budget plan

I came across this idea not from the original source, but from several frugal living bloggers. The idea originated with Elizabeth Warren in her book, All Your Worth: The Ultimate Lifetime Money Plan. {I haven’t read it, but it’s on my list.}

Basically, the key is to balance your spending. You divide your budget into three categories: essentials that you need, lifestyle expenses that you want, and savings or debt reduction.

Essentials are anything you can’t not pay for: housing, utilities, food, gasoline, etc. They get 50% of your budget.

Lifestyle expenses are anything you could live without if critical: basically, everything that isn’t in the essentials category. They get 30% of your budget.

Savings and debt reduction get 20% of your budget.

How the 50/30/20 budget works for us

This plan works for us more or less. Your budget really needs to be flexible, especially if your income is not exactly the same every month.

I changed up the categories a little bit to fit my family. Yours may be different. For example, I work from home, so Internet service isn’t negotiable. Without it, my income would be gone. If your budget is tight, it might make sense for you to cut the home network and just use your cell phone’s data.

Our essentials:

• mortgage and homeowners insurance {paid together}
• utilities: electricity, natural gas, water, garbage, Internet
• groceries
• gasoline fuel
• auto insurance

For our non-essentials, I also include irregular expenses. These are things I do have to pay for, but they aren’t a consistent amount or schedule.

• car maintenance
• office supplies/postage
• healthcare {Not insurance – that comes out of Hubby’s pay before he gets it.}
• home goods
• school
• fun shopping/gifts
• travel

This means that I have to be pretty organized and remember that a big chunk of my lifestyle budget will go to school supplies in August and Christmas presents in November. I’m not going to buy everyone new shoes during the month that the car registration is due. Some months, we don’t have 20% left for debt/savings. I think that’s okay, as long as it isn’t every month.

Planning the budget

A $50,000 income breaks down to about $4167 per month. {Note: This isn’t technically accurate since money taken out for taxes, but we’re just doing math here.} With the percentages, that’s $2083.50 for essentials, $1250.10 for lifestyle, and $833.40 for debt/savings.

Edit for update: Take home pay is approximately 70%, so for that $50,000 annual income, you would be actually getting $35,000 of it – $1345 biweekly paychecks. For the percentages, that’s $1345 for essentials, $807 for lifestyle, and $538 for debt/savings each month. I updated the spreadsheet to include a tab for those numbers.

Since this probably isn’t your income, the percentages are what makes it attainable. It helps you see the areas where you might be overspending.

The key to having a budget that works is knowing when you need to spend less now because you will be spending more later.

I use an Excel spreadsheet to track our every expense. This is handy because I can use the simple addition function to calculate totals for each category, week, and month. I shared a printable version HERE. Of course, you can’t keep a running total on paper, so today I’m sharing my Excel spreadsheet.

Download your Excel spreadsheet HERE.

A few notes on the spreadsheet:

• The first tab is an example using the $50k income.
• I put numbers similar to the percentages we spend (not amounts) for essentials and random numbers for non-essentials, but something as simple as groceries varies widely, depending on where you live, how many people you’re feeding, and dietary restrictions.
• The second tab is the updated take-home pay. You can easily start a new tab and just copy/paste.
• Each week adds up vertically. Each category adds up horizontally.
• I already inserted the formulas for adding up the weeks, categories, and totals.
• To add two numbers inside each individual box (say you go to two grocery stores this week), enter this formula: =SUM(1st number, 2nd number)

Editing:

This spreadsheet is completely editable, so you can change the dates, categories, numbers, and even the number of rows.

If you need to add a row {or you accidentally delete a total} you may need to fix the formula to correctly add up a column or row. Here’s how:

For adding boxes together, it’s the same formula as adding multiple numbers within a box. Enter this formula: =SUM(1st box, 2nd box, etc.)

Each box has a location based on column and row, such as C9. The easiest way to put them into the formula is to type the beginning of the formula, then highlight the boxes you need to include. This works the same for totaling columns or rows.

Where to begin

Start by putting in the goal (or non-negotiable) amount for the essentials. Your rent/mortgage and some utilities are probably the same each month. You’re probably spending a consistent amount on groceries, gasoline, and a few other things. If you’re not sure, just track what you’re spending for a month.

For that $50,000 income, it would look like this:

You might notice that my weeks are not Monday-Sunday. I’ve found it is easier to stay organized when you’re not trying to remember that Monday was technically part of last month’s budget. My 4th week includes a few extra days too. I try to spend less at the beginning of each month so that when I get to the end, I come out ahead instead of short.

Work towards a zero-sum budget plan. This just means that you have a destination for every dollar you make. If you make an extra $200 this month, it can be added to debt or savings at the end.

This post is getting long and I’ve given you a lot to think about. I’m sure I didn’t answer every question, so please leave a comment or send me an email and I’ll do my best to help.