50/30/20 Budget Framework
Are you quick to judge yourself for that delicious latte or spontaneous meal out? Unsure of how much "fun" money you can allow yourself to enjoy? Before you jump to critical mode, first see how your spending aligns with the budget framework below. Using this methodology, you get clear advice on how much to allocate towards savings, essential expenses, and fun money given your income. Remember there are other factors to consider in your spending plans as well (debt, savings goals, etc); however, this can be a useful benchmark to consider.
The Framework
The 50/30/20 Budget Framework was popularized by Elizabeth Warren and her daughter Amelia Warren Tyagi. It can be used to assess how your essential expenses, savings, and discretionary spending align with your income. I prefer this method because it keeps your buckets broad and therefore, makes your spending easier to track. As opposed to having a budget for eating out and a budget for groceries, etc, it keeps categories at three high levels (essential expenses, discretionary spending, and fun money). It allocates your post-tax monthly income accordingly:
50% towards essential expenses
30% towards discretionary spending
20% towards savings
These guidelines can be adjusted accordingly to fit your specific circumstances. For instance, if you live in a place with a higher cost of living your essential expenses may be higher than 50%; as such, you may need to adjust your discretionary spending down.
Category Examples
Below are examples in each category. This list is not exhaustive:
Essential Expenses (think non-negotiable)
Rent/Mortgage
Utilities (Electricity, Gas, Water)
Cell Phone Plan
Monthly debt payments (ex: car loan payment, etc)
Groceries
Medication Co-Pay
Health Insurance
Discretionary Spending (think fun money!)
Meals Out/Takeout
Streaming Services (Hulu, Netflix, etc))
Other Subscription Services (Spotify, NYTimes, gym membership, etc)
Clothes and Shopping (Non-essential)
Gifts
Savings:
Emergency Savings/Rainy Day Fund
Retirement (Long-Term Savings) Contributions
Anything Above Minimum Debt Payments
Ex: If you pay extra towards a loan above and beyond the monthly amount due.
Other savings goals
Use this framework to get a clear sense of your monthly budget and let me know how it goes! You can shoot me an email at hello@financesforfeminsts.com.
