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50/30/20 Rule for Budgeting


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    There's a lot of money philosophy out there but thought this was worth starting a conversation about. It's called the 50/20/30 Budget Rule. Basically its a simple and straight forward way to do your monthly budgeting, by looking at your after-tax earnings and dividing up how to spend it. Break down is like this:

    50% - Needs and obligations, like rent/mortgage, vehicle, food, bills
    30% - Misc expenses and whatever you want but don't really need
    20% - Savings and paying down/off debts

    Generally speaking I like this division. It helps you look at how much you have to spend and make sure that you aren't living beyond your means. If your mortgage and car payment, for example exceeds 50% of your income post tax, that's likely going to be a problem down the road. So if you can keep it at or below 50%, you have a very respectable amount of breathing room, and that means you are perfectly living within your current means, obligation wise.

    And 30% going to whatever you like is interesting because it allows you to blow off stem by spending some money on things you enjoy. It's interesting that its higher than the savings and debt part, by design.

    And then 20% of your income going toward debt payments and savings. I like this because if you are debt-free, that's a large chunk for savings every month. But if you aren't its a sizable enough amount to put toward being debt-free.

    The only thing I would say is if you have a very large amount of debt, so much so that its stopping you from doing a lot of other financial things, then I would put as much money as you possibly can toward it, even if it means sacrificing your 'spend on whatever you want' budget. At least until your debt is at a very manageable level.

    What does everyone else think about this split? Do you follow something similar or do you think this is maybe too simplistic?

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    WyattTown Wrote:

    And 30% going to whatever you like is interesting because it allows you to blow off stem by spending some money on things you enjoy. It's interesting that its higher than the savings and debt part, by design.

    Yeah, I like this alot. Especially the 30% that goes to miscellaneous stuff. It sort of gives you permission to buy cool stuff and toys without breaking your budget, and feeling guilty about it.
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    BlankCheck Wrote:
    WyattTown Wrote:

    And 30% going to whatever you like is interesting because it allows you to blow off stem by spending some money on things you enjoy. It's interesting that its higher than the savings and debt part, by design.

    Yeah, I like this alot. Especially the 30% that goes to miscellaneous stuff. It sort of gives you permission to buy cool stuff and toys without breaking your budget, and feeling guilty about it.
    Yeah, but you've gotta be strict about the ratios. I would be afraid that just having that 30% number would cause me to make exceptions on purchases, and blow my budget.
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    30% is good. But only after you make enough money to pay all your bills with only 50% of your income. And that's where I think this philosophy could confuse some people. They might focus on the 30%, but really that's the least impt part. The driving home goal is only allow all your bills combined to equal 50% of your take home income, after taxes, every month. If you are over 50% and still spend 30% on whatever, you are going to go into debt/be over budget every month.

    So if you add up all your bills and they extend 50% of your after tax earnings, you would have to either sacrifice some or all of that 30% to make up for the difference, or figure out a way to either make more money or lower your expenses - cheaper rent/mortgage, cheaper car, smaller cable bill, etc.