Budgets can be as flexible as you need them to be. But sometimes, people don’t want to go through so much trial and error in order to find something that works for them. Some people just want you to give them some guidelines to follow.
For the purpose of making this super easy, lets use fictional Irena for our examples. Irena brings home $2500 a month.
So, first the 50 – LearnVest recommends that your FIXED expenses be no more than 50% of your take home pay. This includes anything that has a fixed amount per month from housing costs to daycare. For Irena, her rent, utilities, cell phone and internet bill, and her Hulu subscription are going to go under this category, so to be in the recommended zone, she should be allocating no more than $1250 on fixed costs and housing.
Personally, I’m over in this category by a little over 1%.
Next we have the 20 – LearnVest recommends that your financial GOALS take up no more than 20% of your take home pay. To be in the recommended zone, Irena should put $500 a month towards long term investing and short term savings goals. If she has any debt to pay off, this is the minimum amount of money she should be putting towards her debt monthly.
I find myself at 18% for this category.
Last we have the 30 – LearnVest recommends that 30% of your take home pay go to FLEXIBLE expenses – this is everything else: groceries, coffee, dining out, entertainment, gas, clothes, whatever is left. For Irena, to be in the zone, she should spend no more than $750 a month on food and fun. LearnVest says they put food in flex spending because groceries and dining out can vary widely from month to month.
For this category, I’m at 31%.
The purpose of the 50/20/30 Rule is to simplify your budgeting life. Sometimes the thought of tracking everything just drives people crazy. (I LOVE tracking, but everyone is different.) If you call into that category, the 50/20/30 Rule is to the rescue. All you have to remember are three numbers for three categories. For Irena that’s $1250 for FIXED expenses, $500 for SAVINGS, and $750 for EVERYTHING ELSE.
So, what about giving? Surprisingly, this is barely mentioned on LearnVest’s site and doesn’t show up in any of the examples on the article. I’m guessing it goes in the flexible spending category – it’s where mine would have to be. And it is a little flexible. When I make more money, I donate more money.
You may find that you consistently spend a set amount on tradition flexible categories. For example, most people don’t have fixed transportation costs, as the price of fuel varies weekly, and the amount of driving someone may do on a weekly basis can vary as well. But if you consistently spend a certain amount of money on gasoline a month or you always take the bus, the subway, or your scooter – these expenses can easily go in the fixed category, as can anything else you need to be a fixed expense, like maybe groceries.
The point is to make budgeting easy. Instead of allocating your flexible spending to specific categories, you can just say that you have $750 to spend on whatever you want. The danger with this, of course, is that you may end up spending $300 on dining out when you could easily get by with half that or less. You may also spend your grocery money on shoes.
I would personally recommend that people budget a set amount for food. A lot of people tend to spend the same amount of money on food a month anyway. Then anything after food and giving, I would call blow money, and then you can actually do whatever you want with that, without dipping into grocery and gas money.
At the end of the day, the 50/20/30 Rule is just a recommendation. Ultimately, you need to do whatever works best for you, but this can give you a place to start if you don’t know where to begin, or if you just want to see where you can make some improvements and tweaks in your current budget. 🙂