How to Balance Your Household Budget — The 50/30/20 Budget Rule

Updated: Jan 6



Let’s put one myth to bed right now — Budgeting isn’t easy, at least not at first, especially if you’re a busy bee who feels like she can’t add anything more to her plate.

Budgeting means sitting down and writing out a plan. It takes time and energy to accurately assess how much money you have and where it goes. If you’ve been flying by the seat of your pants — spending a little bit here and a little bit there and hoping everything will just sort itself out — the very thought of so much foresight and discipline can feel overwhelming.

But here’s the truth: Making a plan helps you make the most of your hard-earned savings.

Senator Elizabeth Warren shares her secrets to mastering finances in her book “All Your Worth: The Ultimate Lifetime Money Plan.” Warren maps out the 50/30/20 budget rule to help you manage your money, and save for emergencies and retirement. “The secret?” she writes. “It’s simple, really: get your money in balance.”

Divide up your after-tax income — and make a simple budget.

It’s as simple as:

  1. Spend 50% on your needs.

  2. Spend 30% on your wants.

  3. Put away 20% in savings.

Here’s an example:

Let’s imagine your family’s after-tax income is $65,000 — which is hovering just above the median household income in the United States. Here’s how you could apply the 50/30/20 budget rule:

Needs: $32.5K of after-tax income or $2,708 per month

Just the basics.


Rent or mortgage payments

Utilities

Groceries

Car payments

Insurance

Health care

Minimum debt payment


Wants: $19.5K or $1,625 per month

These are all the things that aren’t essential — but make life enjoyable.

Vacation

New clothes, shoes, jewelry, bags, beauty products, etc.

Gym memberships

HBO, Netflix, Prime subscriptions

Dinner and movies out

Toys and gifts

Electronics

Savings: $13K or $1,083 per month

Allocate 20% of your after-tax income to savings and investments.

Add money to an emergency savings account — consider setting aside three months of living expenses or more.

Contribute to an IRA or 401(k).

Invest your money with a robo-advisor or financial advisors.

Debt repayment — while minimum payments are part of the "needs" category, any extra payments reduce the principal and future interest owed. Simply put, they count towards savings.

Having a plan and sticking with it allows you to cover your expenses and save for retirement — while still prioritizing the activities that make you happy. Plus it reduces financial stress. Ready to get started? Share your journey with your Hive.

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Have you tried budgeting in the past? What worked? What didn’t?

How do you balance “needs” and “wants” in your life?

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