<p>With the 50/20/30 budgeting method:</p>
<ul>
<li><strong> 50% of your monthly spending goes toward essentials</strong> - your home, your food, etc.</li>
<li><strong>20% of your monthly spending goes toward savings goals</strong>. It also includes paying down debts as it helps you build savings later.</li>
<li><strong>30% of your monthly spending goes toward everything else</strong>. That might include travel, gifts, and dining.</li>
</ul>

The 50/20/30 budgeting method

<p>Debt payments may look confusing when you add it to the savings column. But the easiest way to build up a savings balance is not to have your money go toward debt. <strong>Once your debt is paid off, you can increase the savings.</strong></p>

Debt payments

<p>Play around with your monthly budget to see where you can reduce your monthly spending:</p>
<ul>
<li>You could contact your internet company to get a discount.</li>
<li>You can clip coupons and use rebate apps to spend less on your monthly groceries.</li>
<li>You could set aside less for medical expenses if you have an emergency fund.</li>
</ul>

Reducing your essentials

<img src="data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==" srcset="https://i.kinja-img.com/gawker-media/image/upload/c_fill, https://twocents.lifehacker.com/f_auto, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/g_center, https://twocents.lifehacker.com/h_180, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_320/bxgpzchvxgwc5dj4ptna.jpg 320w, https://i.kinja-img.com/gawker-media/image/upload/c_fill, https://twocents.lifehacker.com/f_auto, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/g_center, https://twocents.lifehacker.com/h_264, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_470/bxgpzchvxgwc5dj4ptna.jpg 470w, https://i.kinja-img.com/gawker-media/image/upload/c_fill, https://twocents.lifehacker.com/f_auto, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/g_center, https://twocents.lifehacker.com/h_450, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_800/bxgpzchvxgwc5dj4ptna.jpg 800w, https://i.kinja-img.com/gawker-media/image/upload/c_fill, https://twocents.lifehacker.com/f_auto, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/g_center, https://twocents.lifehacker.com/h_675, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_1200/bxgpzchvxgwc5dj4ptna.jpg 1200w, https://i.kinja-img.com/gawker-media/image/upload/c_fill, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/g_center, https://twocents.lifehacker.com/h_900, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_1600/bxgpzchvxgwc5dj4ptna.jpg 1600w, https://i.kinja-img.com/gawker-media/image/upload/c_fill, https://twocents.lifehacker.com/f_auto, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/g_center, https://twocents.lifehacker.com/h_80, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_80/bxgpzchvxgwc5dj4ptna.jpg 80w" width="40" height="40"><div>2</div><figure><img src="data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==" alt="Illustration for article titled How to Set Up a 50/20/30 Budget" srcset="https://i.kinja-img.com/gawker-media/image/upload/c_fill, https://twocents.lifehacker.com/f_auto, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/g_center, https://twocents.lifehacker.com/h_80, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_80/culasab7db8zdhl3g4v1.jpg 80w, https://i.kinja-img.com/gawker-media/image/upload/c_fit, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_320/culasab7db8zdhl3g4v1.jpg 320w, https://i.kinja-img.com/gawker-media/image/upload/c_fit, https://twocents.lifehacker.com/f_auto, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_470/culasab7db8zdhl3g4v1.jpg 470w, https://i.kinja-img.com/gawker-media/image/upload/c_scale, https://twocents.lifehacker.com/f_auto, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_800/culasab7db8zdhl3g4v1.jpg 800w, https://i.kinja-img.com/gawker-media/image/upload/c_scale, https://twocents.lifehacker.com/f_auto, https://twocents.lifehacker.com/fl_progressive, https://twocents.lifehacker.com/q_80, https://twocents.lifehacker.com/w_1600/culasab7db8zdhl3g4v1.jpg 1600w" width="749" height="421"><figcaption dir="auto">Photo: Shutterstock</figcaption></figure><p>There are lots of different budgeting methods you can try to determine the best way to manage your money. But while budgeting guides might mention those methods or provide broad categories on which to focus, they don’t always make it easy to see how your budget will actually look.</p><p>This month, I’ll share several budgeting methods you may have heard about, and break down how they look on paper (well, a Google sheet).</p><p>First up: the 50/20/30 method. Here’s how the broad strokes break down:</p><UL><LI>50% of your monthly spending goes toward essentials. Your home, your transportation, your food, etc.</LI><LI>20% of your monthly spending goes toward savings goals. You can also group debt payments into this category, since paying down debt helps you build savings later.</LI><LI>30% of your monthly spending goes toward everything else. That might include your gym membership, travel, gifts, and dining. </LI></UL><cnx>Top Articles</cnx><cnx>A Letter Not From a Birmingham Jail </cnx><img src="https://img.connatix.com/22631298-dd91-40d8-9fa9-670b2feeef90/70b7a4c6-e68e-4317-a1e6-ce0559b40d4b.jpg?crop=636:358,smart&amp;width=636&amp;height=358&amp;fit=crop" width="636" height="358"><img src="https://img.connatix.com/22631298-dd91-40d8-9fa9-670b2feeef90/c3656977-2d29-40fa-bada-0f2cb032d1e8.jpg?crop=636:358,smart&amp;width=636&amp;height=358&amp;fit=crop" width="636" height="358"><img src="https://img.connatix.com/22631298-dd91-40d8-9fa9-670b2feeef90/c7bcf44e-b23c-4b3e-98a2-a759f982ad87.jpg?crop=636:358,smart&amp;width=636&amp;height=358&amp;fit=crop" width="636" height="358"><img src="https://img.connatix.com/22631298-dd91-40d8-9fa9-670b2feeef90/2a4d60b5-4815-445c-bc63-b8d7efa5531e.jpg?crop=636:358,smart&amp;width=636&amp;height=358&amp;fit=crop" width="636" height="358"><img src="https://img.connatix.com/22631298-dd91-40d8-9fa9-670b2feeef90/9c7cba53-5ea2-4391-9393-d0efa4dbca0c.jpg?crop=636:358,smart&amp;width=636&amp;height=358&amp;fit=crop" width="636" height="358"><cnx-span>Read More</cnx-span><img src="https://img.connatix.com/22631298-dd91-40d8-9fa9-670b2feeef90/70b7a4c6-e68e-4317-a1e6-ce0559b40d4b.jpg?crop=636:430,smart&amp;width=636&amp;height=430&amp;fit=crop" width="636" height="430"><div>Advertisement</div><p>Let’s take a look at an example budget to show you how it might look when you first set up your 50/20/30 budget, which you can do in a simple spreadsheet or by using a budgeting app and taking a look at your percentages. I’ll use the same salary and expenses each time I present a budgeting example this month.</p><p>This hypothetical person makes $50,000 per year before federal taxes and does not pay state income tax. They do not make any pre-tax contributions to a 401(k) or other benefit account. Their healthcare premiums are covered by their employer. (Like I said, this is hypothetical. We’re going for simple math here.)</p><p>A quick glance will tell you this budget is all off. You might notice the percentages don’t add up because we’re over budget. The expenses are higher than the monthly take-home pay, this person is spending almost 70% on their essentials costs, and they are not having much fun each month with their “everything else” money unless they hang out at the gym all the time.</p><figure><img src="data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==" alt="Illustration for article titled How to Set Up a 50/20/30 Budget" width="636" height="636"><figcaption dir="auto">Screenshot: Lisa Rowan</figcaption></figure><div>Advertisement</div><p dir="ltr">Time to rearrange some things.<br dir="ltr"></p><p>First, you’ve got that monthly debt payment in the “essentials” group, when it can go down in “savings.” It’s not sexy, and it’s confusing, but stick with me. The 20% savings category is often referred to as “financial goals.” The easiest way to build up a solid savings balance is to not have to put money toward your debt. Focus on debt payments, and the benefit cascades down to other areas of your budget.</p><div>Advertisement</div><p>So we’ll put that debt payment down with savings and then reduce that emergency fund allocation so that we’re not in the red at the end of the month. (Once the debt is paid off, you can increase the savings again.)</p><figure><img src="data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==" alt="Illustration for article titled How to Set Up a 50/20/30 Budget" width="636" height="636"><figcaption dir="auto">Screenshot: Lisa Rowan</figcaption></figure><div>Advertisement</div><p>Now we’re on better footing, but the three parts of the budget are still a little off. Maybe you’re cool with having a strict budget for “everything else” so you can maximize your saving and debt payoff efforts. But maybe you can reduce your essentials to balance things a bit better.</p><p>You call your internet company to get a discount on your service. You clip coupons and use rebate apps to spend $25 less on groceries each month. You like to set aside $100 for medical expenses but usually only spend $60 on prescriptions and copays each month, so you scrimp there a bit knowing you have your emergency fund.</p><div>Advertisement</div><p>There’s $80 bucks. How much of a difference does it make? Let’s see. </p><figure><img src="data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==" alt="Illustration for article titled How to Set Up a 50/20/30 Budget" width="636" height="636"><figcaption dir="auto">Screenshot: Lisa Rowan</figcaption></figure><div>Advertisement</div><p>Hey, that’s not bad. This person still has a super-strict budget, but they’re prioritizing their monthly goals for savings and debt payment and reduced their monthly expenses by a smidge to get close to that 50% goal for essentials. The three groups don’t add up to 100% because we’re coming in under budget. This person has $141 left over each month that could go toward whatever they want. Maybe even a night out!</p><p>So if you play with this budget type and can’t get to exactly that 50/20/30 split, don’t feel like a failure. It takes some trial and error to determine the best breakdown for you. And depending on where you live and your income level—say, if you live in a super-expensive city where housing eats up a lot of your budget—you may never hit the targets exactly. But by seeing the full picture with this method, you can determine how to rearrange your spending to optimize your budget as best you can.</p><div>Advertisement</div><p>And remember—I will tell you over and over—a budget is a living document. You will need to make adjustments along the way as circumstances change or unexpected costs arise. So don’t try to set it and forget it.</p><p>Are you a fan of the 50/20/30 budget? How do you manage and monitor yours? Share your methods and your experiences in the comments.</p><div>Advertisement</div>

There are lots of different budgeting methods you can try to determine the best way to manage your money. But while budgeting guides might mention those methods or provide broad categories on which to focus, they don’t always make it easy to see how your budget will actually look.

How to Set Up a 50/20/30 Budget

The 50/20/30 budgeting method

Debt payments

Reducing your essentials

Lola F.'s ideas are part of this journey:

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