A Family Budget Using The 50/30/20 Budget Rule

What is the 50/30/20 budget rule?

Budgeting is all about telling your money where to go! With the 50/30/20 budget, you are using percentages to break down your monthly income into more manageable and practical budgeting categories.

How to budget your money using the 50/30/20 budget rule. Step by step instructions to easily create your monthly family budget. #familybudget #503020budget #oneincomebudget

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I have always loved numbers, math was one of my favorite subjects in school. You would think that I would have been great with money and budgeting, but that wasn’t the case. I wouldn’t say I have been terrible with money but I could have done a lot better if I would have known some key budgeting basics.

You live and learn, right!?

Creating a budget can be the last thing on your mind. I get it, it can be a tad boring. However, I CANNOT stress enough how IMPORTANT it is to know where all your money is going throughout the month. You work hard to earn your money, you should work hard to manage it.

What Is A Budget?

According to Google’s dictionary, a budget is an estimate of income and expenditure for a set period of time. In order to create a budget, you need to know all income (paycheck, etc.) that is coming in and all expenses (bills, cash, spending, etc.) going out.

How To Create A Monthly Budget.

If you currently do not have a budget I would highly suggest setting up a more basic budget first. I wrote a great post several weeks ago that breaks it down into easy and manageable steps with pictures and examples!

RELATED: How To Create A Budget In 4 Simple Steps

Budgeting Tools

Before you get started you are going to need the following items.

If you are great with Microsoft Excel then, by all means, use that. I am just a paper/pen type of budgeter.

Setting Up A Budget Template.

After you have created a basic budget you can start thinking more about the style of budgeting you want to use.

I was introduced to Dave Ramsey awhile back, but recently started getting serious with his teachings. He is a money guru who wrote the book, Total Money Makeover. He teaches about 7 Baby Steps to get out of debt and stay out of debt.

RELATED: 7 Financial Goals For Your Budget

Something he suggests you to do is break down your budget into percentages. I love percentage budgeting because it works with any income level!

Not sure how to budget your money? Percentage budgeting makes it easier! Dave Ramsey percentages VS the 50-30/20 budget rule! #familybudget #503020rule #howtobudget

Percentage Budgeting: Dave Ramsey

After I learned about Dave Ramsey and his Total Money Makeover system I tried to fit all my expenses within his recommended percentage categories. He says these are the percentages you should stick within no matter what your income level is.

  • Housing:  25%-35%

  • Utilities: 5%-10%

  • Food: 10%-15%

  • Transportation: 10%-15%

  • Clothing: 2%-7%

  • Health: 5%-10%

  • Insurance: 10%-25%

  • Personal: 10%-15%

  • Recreation: 5%-10%

  • Savings: 10%-15%

  • Giving: 10%-15%

I am going to be honest, I had such a hard time with these percentages. Some of my categories were WAY UNDER what he recommended and other areas were WAY OVER! And, because he doesn’t believe anyone should have debt outside of your mortgage I was “stealing” percentages from other areas to cover my debt payments. I love Dave Ramsey’s baby steps but I did not love his percentage categories.

Disclaimer: I do agree with his housing percentage… you should NEVER get yourself into a situation where you are house broke. Keeping your payment to 25% of your income will be a smart financial decision, I promise!

Percentage Budgeting: 50/30/20 Rule

Enter the 50/30/20 percentage budget plan. This plan, my friends, is how I plan my budget and the plan I recommend you use! There are only 3 categories you need to figure percentages for.

  • Needs: 50%

  • Lifestyle: 30%

  • Savings/Debt: 20%

What Is The 50/30/20 Budget Rule?

The 50/30/20 budget rule allows you to break your income down into percentages, you then fit your expenses into those categories.

Needs: 50% of Income

The “NEEDS” section will include anything you have to have to live. This would include:

  • A roof over your head: mortgage, rent.

  • Utilities: water, electric, gas.

  • Food: groceries and household items.

  • Clothing: basic necessities

  • Health Insurance

  • Car Insurance

  • Transportation: gas, car payment, Uber/taxi (to get back and forth to work)

  • Childcare (while you work)

  • Minimum Debt Payments (I have seen people put minimum debt payments as a “need” because they HAVE to be paid every month. I put my car payment in the “need” and my student loan payment in the “savings/debt” section.)

Lifestyle: 30% of Income

This section is for your “fun” money. The things you can live without but don’t necessarily want to live without. This could include:

  • Cell Phone - YES, cell phone goes into this category. We lived without them once, I am sure you (I) could do it again.

  • Cable/Netflix/etc.

  • Internet

  • Giving/Tithe

  • Eating Out

  • Entertainment: sport tickets, concert tickets, movie theatre, etc.

  • Clothing: items outside of the basics

  • Travel/Vacation

  • Kids Sports

  • Memberships: gyms, subscription boxes, Amazon Prime, etc.

Savings/Debt: 20% of Income

This is part of my budget I get the most excited about! We used to not be able to save much money at all! In fact, when I created our first budget we were NEGATIVE $200!! This section will include your savings and extra debt repayments.

  • Minimum Debt Payment (Or you can have this in the “need” section.)

  • Extra Debt Repayment/Snowball Payment

  • Emergency Fund

  • Sinking Funds

  • 3-6 Month Savings

  • Retirement Account

  • Investments

  • Kids College Fund

  • Major Expense Savings: a new deck, fence, pool, car, Christmas, home renovation, etc.

How To Budget Your Money With The 50/30/20 Rule.

I want you to use the numbers you gathered when you created your basic budget earlier. You NEED to know your monthly budget numbers before you can fill them into the percentage budget categories.

RELATED: How To Create A Budget In 4 Simple Steps

These examples are for informational purposes only, the money values are NOT our real income/expense numbers. According to Time.com/money the average income for Missouri (which is where I live) is $50,235 so I am using that has my base take-home pay for this example. This example is also assuming you get paid every other week (bi-weekly payment schedule).

The example below is the budget figured out in the post mentioned above!

Creating your basic budget that you can then use to create a 50/30/20 budget. #503020rule #familybudget #simplebudget

You need to look at your budget as a whole month when figuring up your categories.

Planning the “NEEDS” category

  1. Calculate your needs budget by taking your monthly INCOME multiplied by 50% (.50).

  2. Write down all your expenses that fall in the “needs” category and their monthly totals.

  3. Total the expenses and subtract from the needs allocated budget amount, this will determine if you have extra money in the “needs” category or if you are over budget in this category.

Planning the “LIFESTYLE” category

  1. Calculate your needs budget by taking your monthly INCOME multiplied by 30% (.30).

  2. Write down all your expenses that fall in the “lifestyle” category and their monthly totals.

  3. Total the expenses and subtract from the needs allocated budget amount, this will determine if you have extra money in the “lifestyle” category or if you are over budget in this category.

Planning the “SAVINGS/DEBT” category

  1. Calculate your needs budget by taking your monthly INCOME multiplied by 20% (.20).

  2. Write down all your expenses that fall in the “savings/debt” category and their monthly totals.

  3. Total the expenses and subtract from the needs allocated budget amount, this will determine if you have extra money in the “savings/debt” category or if you are over budget in this category.

Creating a 50/30/20 Budget isn’t hard. I walk you through the step by step process. #503020rule #familybudget #budgetingbasics

Planning for any overages(positives)/shortages(negatives)

Don’t be concerned if you any of your 3 categories have overages or shortages. This is when you can take a look at your budget and see where you need to make changes. Do you need to cut back more on expenses or do you need a jump up in income?

In the example provided above you will see the “needs” category is off by $502.88. In this case the budget is “short” funds in the needs category and it is being covered by “borrowing” from the overages in the other categories.

Remember, above I said when I first created a budget I was negative $200. I eventually got my budget straightened out and everything was covered. Well, when my husband and I decided we wanted to budget doing the 50/30/20 rule it didn’t look too far off from the example above.

We had to make more changes to our budget and eventually my husband received a raise which helped us out tremendously.

Real Life 50/30/20 Budget Example

This is what our categories currently look like.

Creating a 50/30/20 Budget doesn’t have to be hard. I walk you through the step by step guide and give you a real life example. #familybudget #budgetingbasics #503020rule

Our financial journey has been full of ups and downs over the last 12 years of marriage. We started out with no budget and no financial goals. There have been times when we relied on 2 paychecks just to survive and still had to use a credit card to “keep up”. We have had times with car payments and times without. We have made good financial choices and bad financial choices.

Today, we live off of my husband’s income and we live comfortably. We do not have an “extravagant” lifestyle but we do live within our means. Keeping to a budget isn’t always fun and certainly isn’t always easy but it is a key component to financial freedom in the long run.

Bonus tip: If you are just starting out with creating a budget and being intentional with your money, it may seem like an impossible journey. But don’t compare your 1st chapter with my 12th. Everyone starts somewhere. Don’t give up. Keep going. Keep being intentional. You GOT THIS!

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