The balanced money formula, otherwise known as the 50/30/20 method, is a budgeting strategy that suggests allocating your income in the following way:
50% of your income should go towards necessities, such as housing, food, transportation and healthcare.
30% of your income should go towards wants, such as entertainment, dining out and shopping.
20% of your income should go towards savings and debt repayment.
The idea behind this method is that it helps you to balance your spending between what you need and what you want, while also making sure that you are saving and paying down debt. The percentages are just a guideline and you can adjust them to fit your financial situation.
The 50/30/20 budgeting method is relatively simple to follow and can be a good starting point for those who are new to budgeting. It is also flexible enough to be adapted to different income levels and expenses.
Who should try this method?
The balanced money formula method was created for its simplicity and effectiveness. Utilising this strategy means that you do not have to budget for every category; you only have three categories to worry about, instead of a dozen.
If you are someone who wants a simple and effective budgeting method that differs from the traditional methods, then this may be for you.
Considerations
Overspending: Overspending can be a common occurrence with this method, be sure to correctly track your spending.
Income level: The 50/30/20 method is based on the idea that you will use 50% of your income for necessities, 30% for wants, and 20% for savings and debt repayment. However, if your income is low, it may be difficult to allocate 50% of your income to necessities without cutting back on other important expenses. In this case, you may need to adjust the percentages to better reflect your financial situation.
High cost of Living: If you live in an area with a high cost of living, such as a large city, it may be difficult to allocate 50% of your income to necessities. In this case, you may need to adjust the percentages to better reflect your expenses.
Debt repayment: If you have a lot of debt, it may be difficult to allocate only 20% of your income to debt repayment and savings. In this case, you may need to allocate more of your income to debt repayment until your debt is paid off.
Long-term goals: The 50/30/20 method is a good way to balance your spending in the short term, but it may not be enough to achieve long-term financial goals such as retirement or buying a house. In this case, you may need to allocate more of your income to savings or investments.
Adjust to your needs: The 50/30/20 method is a simple and flexible way to budget your money, but it’s not set in stone. You should adjust the percentages depending on your financial situation and goals, and don’t be afraid to make changes when needed.
It is important to remember that the 50/30/20 budgeting method is a guideline, not a rule. You should adjust the percentages to fit your financial situation, and not be afraid to make changes when you need.