How to Make a Simple 50/20/30 Family Budget

If you find it difficult to maintain a consistent family budget, consider a simple formula – the 50/20/30 rule for keeping track of your expenses. The 50/20/30 Rule, actually more tentative than anything else, divides your spending into three categories to keep you on budget: needs, wants, and savings. To give you an idea of ​​how this works, let’s take a look at how a middle-income family in the United States can use this rule to create a budget.

How the 50/20/30 budget works

As with other budget rules, such as the less formal 50/15/5 rule, the goal is to help you track your spending so you develop sustainable spending habits and not rely on high interest debt. This is how it fails:

  • 50% of your monthly expenses go to needs. Needs are important expenses that you must pay in order to survive or keep working. This can include rent, transportation, utilities, and food.
  • 20% of your monthly spending goes towards savings. Payments on debts may also fall into this category as you need to pay them off.
  • 30% of your monthly expenses go to what you want. This could include your gym membership, travel, gifts, and meals.

What a 50/20/30 budget will look like in practice

Using the average US household wage of $ 63,179 as a starting point, we need to deduct taxes. Obviously, state taxes will be different, but for this example, I will use the estimated New York State taxes , which would give us $ 46,271 in wages per home. This, in turn, results in a monthly breakdown like this:

  • 50% for needs = $ 1928 / month
  • 20% on savings = $ 771 / month
  • 30% on wishes = $ 1157 / month

Given that the average monthly rent for a two-bedroom apartment can cost anywhere from $ 800 to $ 1,800, depending on which state you live in, your home will have the biggest impact on whether you are on budget, as well as your debt. (Use this calculator to see how your 50/20/30 budget will affect your income.)

Again, these are guidelines. If you live in New York or San Francisco, you may end up spending less on needs and more on rent, so the ratio is closer to 65% needs, 20% savings, and 15% needs – whatever works best. for your situation. However, as part of this process, you can identify unnecessary costs and hopefully eliminate them (for example, a gym membership you don’t use, or a TV subscription you can cancel) so that your costs stay in place. budget.

Bottom line

As with all budget rules, the goal is to maintain a consistent budget that allows you to manage debt payments as well as save some money for retirement. If you are struggling to pay off your debts, read more about debt repayment options here .


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