Kickstart Your Financial Journey with the 50/30/20 Budget: Top Pros and Cons

When taking the first step in your financial journey, a common piece of advice is to “save your money!” But how much should you save? When should you start? And how do you even get started?

The answer to many of these questions is budgeting.

Budgeting is not a one-size-fits-all solution, and there are numerous budgeting types and methods to choose from. One of the most popular methods is the 50/30/20 Budget.

The 50/30/20 Budget

When thinking of budgeting, the first type many think of is the 50/30/20 plan. But why is it so popular?

This type of budget splits your income into three sections. Before committing to this plan, take the time to track your monthly expenses and categorize them into two categories: needs and wants.

50% for Needs: This represents 50% of your income going towards your needs. These are necessary payments such as food, insurance, utilities, gas, transportation, etc.

30% for Wants: This represents 30% of your take-home income satisfying your wants. Remember those $90 sneakers you wanted? Now is the time to buy them!

20% for Savings: The remaining 20% of your income goes towards savings and debt repayment.

Pros vs. Cons

Pros - 

Simplicity: The 50/30/20 method puts budgeting into simple terms. Its simplicity is easy to understand for beginners, as it takes advantage of broader categories instead of requiring meticulous tracking of every expense.

Flexibility: The 50/30/20 budget uses broad categories: needs, wants, and savings. With these broader categories comes greater flexibility. For example, if you manage to save on any part of the needs category (i.e., groceries or transportation), you can allocate extra savings to the other categories! This flexibility helps accommodate varying monthly expenses and lifestyle changes.

Cons - 

Broad Approach: While the broad categories can be a pro, they can also be a con for some. For those with complex financial situations, the 50/30/20 method may not be inclusive enough to meet their needs and 

might require more structure to ensure financial success.

Insufficient Savings Rate for Some: Although there is flexibility regarding allocating specific sources of income, the broadness of each category may not be suitable for all. For example, individuals looking to save for a home or a car may find that saving 20% of their monthly income is too little, depending on their personal financial preferences and goals.

In our next post, we will discuss other budgeting strategies! Stay tuned for more!