Ever feel like your paycheck disappears faster than the latest TikTok trend? You’re not alone.
One minute you’re looking at your bank balance, feeling like you’re about to actually adult, and the next minute…poof! It’s gone, and you’re left wondering where all that money went. If that’s you, you’re definitely in the right place.
Here at RealRichMoves, we understand that adulting is hard, especially when it comes to managing your money. It can feel overwhelming – like you’re lost in a money maze with no map.
But what if we told you there was a simple budget framework that could actually help you get a handle on things?
Well, there is! It’s called the 50/30/20 rule, and it’s about to become your new best friend. We’re not talking about some complicated finance jargon or endless spreadsheets.
This is budgeting simplified – a no-fuss way to finally take control of your finances, ditch the stress, and start crushing your financial goals.
This rule is designed to give you clarity, control, and a clear path toward building your financial future. So, what exactly is this magical 50/30/20 thing? Let’s break it down.
Decoding the 50/30/20: Needs, Wants, and Savings – The Holy Trinity of Budgeting
The 50/30/20 rule is basically a straightforward way to divide your after-tax income into three categories: needs, wants, and savings. Think of it as the holy trinity of budgeting, keeping your money aligned with your goals and lifestyle. Let’s get into it:
The 50%: Your Essential Needs
The first 50% of your income goes towards your needs. What are needs? These are the things you absolutely have to pay for to survive and function.
We’re talking about the non-negotiables. These are the essentials you can’t really live without, even if you’re on a tight budget.
For us Gen Z folks, these typically include things like:
- Housing: This might be rent, dorm fees, or a mortgage payment.
- Utilities: Think electricity, water, gas, and internet (because let’s be real, who can live without the internet these days?).
- Groceries: Your basic food staples. This doesn’t mean eating out every night; it’s about keeping your fridge stocked with the essentials.
- Transportation: Whether that’s your car payment, gas, public transport costs, or a bike (you know, if you’re into that kinda thing).
- Health Insurance: Because nobody wants to deal with unexpected medical bills.
- Student loan payments: Which unfortunately, we know all about.
These are your must-haves. It’s the stuff that keeps you safe, sheltered, fed, and able to get to work or school. Take a moment right now and ask yourself: What are my major needs this month? Make a mental list. Now you’re ready to move on to the second category.
The 30%: Your Fun, Your Wants
Next up, we have the fun stuff: wants. This is where 30% of your income gets to play. Wants are things you like to spend your money on, but aren’t essential for survival.
While it’s essential to take care of your needs, it’s also important to have a little something in the budget for the things that make you happy.
This category is what makes the 50/30/20 budget so sustainable! We’re talking about things like:
- Eating out: That pizza night with your friends, your favorite coffee, that bougie brunch you’ve been eyeing.
- Entertainment: Movie tickets, concerts, that new video game you’ve been waiting for, or the streaming services you’re addicted to (we’ve all been there, no judgment).
- Shopping: Clothes, gadgets, the random stuff you pick up at Target because… well, why not?
- Travel: That weekend getaway, a vacation with friends, or finally visiting that city you’ve always dreamed about.
- Hobbies: The stuff you actually enjoy spending your money on whether it’s painting, gaming, collecting, etc.
- Subscriptions: All the streaming services, apps, and random subscription boxes you love
It’s about making sure you’re still living your life and enjoying yourself. The key here is to spend consciously. Don’t go overboard, but don’t feel like you have to live like a monk.
You’ve earned your money, so treat yourself. Just be mindful about your spending habits within this 30%. You gotta have a little fun to stay sane, right? Now you’re ready to explore the most important part.
The 20%: Your Future Self’s Best Friend – Savings and Debt Repayment
Finally, we get to the 20% that is all about you and your future. This is the category where we think about building a stable future for ourselves.
This is where you dedicate your hard-earned money to securing your financial health, and that is through savings and debt repayment.
This includes:
- Emergency Fund: Think of this as your “oh crap” fund. It’s there to cover those unexpected expenses like a car repair or a medical bill.
- Long-Term Goals: That dream vacation you’ve always wanted to take, saving up for a down payment on a house or car, or just having extra money for your future goals.
- Investing: Getting your money to work for you. (It doesn’t need to be complex, you can start small).
- Debt Repayment: If you have any credit card debt or student loans, this is the place to start chipping away at them. It is so crucial that you start making this as a goal.
This part is about paying your future self first. It may seem boring compared to the wants, but trust me, it’s the key to reaching financial freedom.
It’s also the most important part of achieving financial independence. This is the piece that can help you finally get out of the cycle of living paycheck to paycheck. It sets you up to achieve wealth building.
The magic of the 50/30/20 rule is how it allows you to create a balanced approach. If you only focus on the needs, you burn out.
If you only focus on the wants, you’re just setting yourself up for long-term stress. That’s why having the right balance will help you feel comfortable and prepared for the future.
This system just works with you, instead of against you.
The Magic Numbers: What Do They Mean?
Before we move on, let’s clarify one crucial detail: these percentages (50, 30, and 20) are all based on your after-tax income, meaning your take-home pay, what you actually bring home after taxes and other deductions.
So, when you’re doing your calculations, make sure you’re working with your net income, not your gross pay. You want to be working with what you actually have in your bank account, and not the before-tax amount. This means you need to look at your bank statements or paystubs.
It’s also important to remember that the 50/30/20 rule is a guideline. It’s okay to adjust the percentages slightly based on your individual needs, goals, and circumstances.
If you have higher needs, you might need to adjust those percentages. The point is to find a system that works for you, not just to rigidly stick to the given percentages.
This is just an ideal goal. This is all about learning how to use the 50/30/20 rule to make it work for your life and your unique circumstances.
Why Gen Z Should Fall in Love with the 50/30/20 Rule
Now that you have an understanding of this budgeting framework, let’s talk about why this is so perfect for Gen Z.
Trust me, I get it. We’re all about simplicity and efficiency. We need tools that work for us without causing a headache. Here’s why the 50/30/20 rule is a game-changer for us:
Simplicity and Ease of Implementation
Let’s face it, who wants to deal with complicated budgeting apps, confusing spreadsheets, or endless financial jargon? Nobody! That’s the beauty of the 50/30/20 rule: It’s incredibly easy budgeting method to understand and implement.
No prior financial knowledge or any fancy tools are required. It’s basically the easiest and most simple budget method you will come across.
The whole system is straightforward, and you can get started immediately. It’s all about the three key areas: needs, wants, and savings. If you’re a complete budgeting for beginners, this is an excellent place to start.
It Promotes Balance and Flexibility
Life happens, and things don’t always go as planned. The 50/30/20 rule isn’t about strict rules and restrictions. It’s about achieving a balance between your needs, wants, and savings.
The 30% “wants” category acknowledges that you’re human and you need to enjoy your life. It prevents you from burning out or getting frustrated with the whole process.
It creates room for flexibility, which is key when you’re dealing with a constantly changing schedule and lifestyle.
It’s not one of those all-or-nothing budgeting rules. You’re not a robot, so you don’t need to budget like one.
You can adjust the “needs” category depending on the current cost of living, your lifestyle, or your situation. The key is that the framework is flexible to work with you, not against you.
You’re allowed to adjust, you’re allowed to make it work for your unique circumstances.
Offers Clear Financial Goals
The 50/30/20 budget provides you with a clear picture of your financial situation. It allows you to understand where your money is going and it makes it easier to prioritize your spending.
The structure of the 50/30/20 method helps you to set financial goals so you’re not just going aimlessly in life. Knowing your needs, wants, and savings goals gives you a clear direction on how to make that possible.
Having a clear framework can also help you stay focused on achieving your long-term financial independence. It will help you make important decisions with your spending and your overall financial journey.
A Foundation for Financial Literacy
The 50/30/20 rule is more than just a budgeting trick; it’s a learning opportunity. It will make you more aware of where your money is going, and it’ll help you be more intentional about your spending habits.
This means you’re taking control of your finances and, in turn, improving your overall financial literacy. The more you understand how money works, the better you will be at managing your money. This is so crucial for all of us to understand.
It’s not just for a paycheck:
Okay, let’s be real. Many of us in Gen Z are juggling a regular job, a side hustle, a gig, or some mix of the three. The 50/30/20 rule works not just for your regular paycheck.
It can also be applied to any extra income you’re making from a side hustle or freelance work. So, if you’re driving for Uber on the weekends, selling your handmade crafts on Etsy, or doing some freelance design work, you can apply the same principles to that income too!
This will help you maximize your financial strategy.
Okay, Let’s Get Started: Steps to Make the 50/30/20 Rule Your Reality
Alright, are you ready to ditch the money stress and get this budget thing rolling? I knew you were! Let’s dive into the step-by-step process:
Step 1: Calculate Your After-Tax Income
First things first, you need to know how much money you’re actually bringing home. This is not your gross pay. It’s your after-tax income, your net pay, which is the amount that hits your bank account after all the taxes, insurances and other deductions are taken out.
Take a look at your most recent paystub or bank statements to determine this number. Once you have that number, you can move on to step two.
Step 2: Track Your Current Spending Habits
Before you start allocating your income, you need to know where your money is currently going. This part can be a little daunting, but it’s an important step to understanding your current spending habits.
Try tracking your expenses for a week or even a month. You can use a budgeting app (we’ll talk more about those in a bit), a spreadsheet, or even a notebook.
The point is to write down every single thing you spend money on, from your coffee in the morning, to the late night snacks you have. This step will show you where the money goes, and will create a visual for what you’re spending.
Step 3: Categorize Your Spending
Now, it’s time to categorize your spending into the three main categories of the 50/30/20 rule: needs, wants, and savings.
Review your expenses from Step 2 and group them accordingly. It’s not always clear cut, but try your best. Be honest with yourself about the things you need, and things you want. Sometimes this part can be hard, but it’s crucial for moving forward.
- Needs: Remember, these are your must-haves like rent, utilities, transportation, and basic groceries.
- Wants: These are things you enjoy but don’t need to survive.
- Savings: This is anything you’re putting away, whether it’s for an emergency fund, debt repayment, or investments.
Step 4: Allocate Your Income Using the 50/30/20 Percentages
Now that you know where your money is going, it’s time to allocate your after-tax income according to the 50/30/20 percentages.
- 50% for Needs: Calculate 50% of your take-home pay and allocate that amount for your needs.
- 30% for Wants: Calculate 30% of your take-home pay and allocate that for your wants.
- 20% for Savings: Allocate 20% for your savings and debt repayment goals.
This can be eye-opening as you see the actual dollar amounts. Remember, this is a guideline, and it’s okay to adjust the percentages slightly to fit your specific situation.
The goal here is to get closer to your financial goals. This number is based on your income allocation, and having a clear understanding of these numbers will help you make smart financial choices.
Step 5: Stick to Your Budget
It’s not just about allocating your income, you also need to commit to the plan and stick to the budget. It’s important to actually go through it, but that is going to take commitment and consistency. Here are some tips to help you stick to it:
- Set up automatic transfers from your checking account to your savings account every pay period. This way, the savings will happen automatically, and you don’t have to worry about it.
- Make sure to use the tool of your choice (apps, spreadsheet, or even a notebook) to track your spending. This will help you stay aware of how much you’re spending in the different categories.
- Review your budget regularly, at least once a month. This will help you track your progress and make adjustments as necessary. You need to make this part of your monthly budget.
Step 6: Re-evaluate and Adjust
The 50/30/20 rule isn’t a “set it and forget it” kind of thing. Life is dynamic, so your budget needs to be too.
If you move, get a raise, change jobs, or have a significant life change, you’ll need to go back and review your budget.
Re-evaluate your spending habits, adjust your income allocations, and make sure your plan is still in line with your current financial goals.
This system is flexible, and this flexibility makes the 50/30/20 budget so appealing. There are not hard-set rules here, so you can move with your own circumstances.
Making Budgeting Even Easier: Your Arsenal of Helpful Tools
Okay, so you’ve learned about the 50/30/20 rule, but how can you make sure that you can stick to it? Luckily, you don’t have to do this all alone. There’s a ton of tools and resources out there that can make this whole budgeting thing even easier.
Budgeting Apps & Online Resources
There are so many awesome budgeting apps and online resources out there to make your life easier. Some popular ones include:
- Mint: A free app that helps you track your spending, create budgets, and set financial goals.
- YNAB (You Need A Budget): This is an app that helps you allocate your income to specific spending categories. It works on zero-based budgeting so every dollar will have a job.
- Personal Capital: This is another app that has free financial planning tools.
These tools can be a game changer when it comes to understanding your spending and keeping up with the 50/30/20 rule. Many of these apps can be linked to your bank accounts, making it easy to automatically track all your expenses.
They can also help you categorize your expenses, which can save you a ton of time. There are also online websites you can use as well to help you plan your finances and goals.
These resources are extremely helpful and are designed to work with your needs. These are some of the best budgeting app for 50/30/20 rule.
Spreadsheets & Calculators
If apps aren’t your thing, you can always use good old spreadsheets. Creating a spreadsheet on Google Sheets or Microsoft Excel is a great option if you like to customize everything.
You can easily track your spending, calculate your 50/30/20 percentages, and visualize your financial progress. There are plenty of free templates available online if you don’t want to start from scratch.
There are also a ton of 50/30/20 budget calculator tools available online. Just search “50/30/20 calculator” and you’ll get a ton of options. These calculators will help simplify the math by letting you input your income, and then it’ll automatically calculate the right percentages for you.
Finding a Community & Support
Don’t underestimate the power of a community! There are many online financial communities, social media groups, and forums where you can connect with other people.
Sharing your experiences, asking for advice, and supporting each other can make the whole budgeting journey a lot easier and way less stressful.
Many of us have similar questions about finance and money management, so finding that online community can be so beneficial.
If you need more one-on-one guidance, don’t be afraid to seek out professional help. There are financial advisors that can help you create personalized strategies, provide tailored recommendations, and get you on a better path to financial health.
Bumps in the Road: Common Challenges and How to Overcome Them
Budgeting isn’t always a walk in the park, and it’s normal to have some challenges along the way. Here’s how you can handle some common problems you may encounter:
Common Budgeting Mistakes
One of the biggest common budgeting mistakes is overspending. It’s easy to get carried away and spend more than what you’ve allocated to your wants category, especially when all your friends are going to a festival or a new pop-up shop.
Another common mistake is not tracking your expenses. You won’t know where your money is going, so you can’t fix the problem.
You also need to understand that you need to adjust as needed, because your budget is not set in stone.
When You Go Over Your Budget
Okay, so you went a little overboard on your wants, it happens. Don’t beat yourself up. It’s okay to have those moments; what matters is that you learn from it.
Take a look at where you overspent and try to figure out ways to cut back in that category next month. Maybe it’s time to bring your lunch instead of eating out every day or skip one of those coffee trips.
If you keep repeating this behavior, then you know it’s a pattern you need to address. But if it’s just a one-time thing, then acknowledge it, learn from it, and move forward.
Adjusting for Variable Income
If you have a variable income, meaning your pay changes from week to week or month to month, it can make budgeting a little trickier, but not impossible.
Your goal should be to focus on the minimum amount of money you know you’ll make each month and base your budget around that number.
If you make more than expected, put that extra money in savings or towards your debt.
The Long Game – Don’t Give Up
Budgeting isn’t a sprint; it’s a marathon. It takes time to develop good financial habits, and it’s completely normal to have setbacks along the way.
The most important thing is to not give up. Keep working on it, make adjustments as needed, and celebrate the small wins.
You have to be consistent and persistent if you want to achieve your goals. The key is to keep going and not give up when things get tough.
The 50/30/20 Rule: Your Ticket to Financial Freedom
Okay, let’s recap. The 50/30/20 rule is a simple budgeting framework that breaks down your after-tax income into needs (50%), wants (30%), and savings (20%).
This is a beginner-friendly way for you to take control of your finances, ditch the stress, and start working towards your goals.
The 50/30/20 budget is not just a quick fix, it’s a foundation for long-term financial wellness, a path towards stability and financial freedom.
By understanding and implementing this rule, you’re not just managing your money, you’re also setting yourself up for a better financial future.
Remember that the 50/30/20 rule is not set in stone, but flexible enough for you to make it your own. This is for you to learn about understanding budgeting principles and make the necessary changes to see your financial success.
So, are you ready to level up your money game and finally take control of your finances? You got this!
Now, let me know in the comments: Have you tried the 50/30/20 method? What’s your current split, and what are some of your current goals? I’d love to hear what you think and what steps you’re taking on your journey to financial wellness.
Check out my other blog post on Saving money tips!
