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The 50-30-20 Budget Strategy For Everyone

What is the 50-30-20 Budget Strategy?


Budgeting isn’t the easiest thing in the world to do - accounting for variations in your weekly spending can be a stressful experience which puts people off the idea entirely. If you’re finding that you’ve created your budget planner spreadsheet and still aren’t sure about how to approach your saving and spending, we’re here to help. 

The 50-30-20 budget is a simple, easy-to-understand budgeting technique anyone can use. 
 
Granted, there’s no single strategy that works for everyone when it comes to budgeting - but if you’re just starting out, this is a helpful strategy to teach you the basics of everyday budgeting and how to save money. 

Starting Simple: Calculate Your After-Tax Income


One of the best pieces of budgeting advice for those just starting out is: avoid looking at your pre-tax salary (gross income). As you become more comfortable with your finances, this won’t be an issue, and you may even enjoy tax by using a tax-free threshold savings strategy

Ultimately, however, this won’t help you save money - it will only tell you how much you are giving to the government. To start truly assessing your income and the amount of money you can put into your budget, you’ll want to look at your net income (after-tax salary).

Once you’ve worked out how much income you have after tax, write it at the top of a document in big, bold font. Now we’re going to look at separating that amount into three areas:
 

  • Must-Haves 
  • Wants 
  • Savings and Debts 

50%: The Must-Haves


This will be the hardest part of your 50-30-20 budget: Netflix or Foxtel subscriptions don’t count! Your Must-Haves are absolute necessities:

  • Rent 
  • Utility bills 
  • School fees 
  • Groceries 
  • Insurance 


Some things straddle the line depending on your personal situation - for instance, you might need a phone plan for work, but you can probably take a cheaper data option and avoid checking Facebook while you’re on-the-go. 

If you’re making your list and decide that buying something can be delayed for another month, then it’s probably not a necessity - e.g. new jeans, a new video game, the latest cell phone. Your phone bill, on the other hand, isn’t something you can avoid, and these regular, essential costs will give you a good idea of where you can trim back to save more money over time. 

For most people, keeping the list of Must-Have expenses to 50% of their income can be difficult at first - it will illustrate where you may have become complacent or extravagant in your spending, and cutting back on these parts of your spending can feel restricting. If you really want to save, however, and aren’t on a particularly high salary or able to claim business expenses, this will be a vital building block to a successful life-long budgeting strategy. 

30%: The Wants


This is the sweet spot of the 50-30-20 budget that most people will enjoy filling out. Every budget should allow for having a good time and treating yourself, even if it means you’ll stay financially responsible while doing so. Here, you can dedicate 30% of your budget to anything you might want:

  • Dinner out 
  • Dates 
  • New clothes 
  • An extra coffee each morning 
  • Buying presents for your friends 


These things are Wants, and have an important place in your life when creating a stable, balanced life plan; keeping your expenses to 30% will keep you on top of your budget and won’t leave you feeling robbed of your freedom. However, once you’ve spent it, it’s gone: you’ll have to stick to Must-Haves until your next pay.

20%: Savings And Debt


This is the best part of the 50-30-20 budget for two crucial reasons:

  • If you are repaying debt, then you’ll already have allocated your Must-Have and Wants and will have a set amount left over that you can comfortably allocate toward repaying the amount you owe 
  • If you aren’t repaying any debts, then this extra 20% of your pay can go toward creating and emergency savings fund 


20% doesn’t seem like a whole lot of money to be put towards paying off your debts, saving for retirement, or bolstering the emergency fund - but the same ‘little by little’ mentality put toward any type of savings activity still stands: although it may appear to be a small amount, over time it will lead to incredible savings - a dollar paid toward your debt today is one you don’t have to worry about tomorrow. 

The most important thing in saving - like maintaining a healthy diet or going to the gym - is being able to maintain a consistent mindset that will allow you to track progress over time. A budget should be a permanent constant in your life, and the 50-30-20 strategy is designed to help make budgeting approachable and accessible for anyone.