Whenever I think of the best budget for beginners, I always think of the 50-30-20 budget.
Maybe I’m biased because it was my first budget when I graduated from college. But in all honesty, I think this method is a great one to start with no matter how old you are or what situation you’re in.
Best budget for beginners – the 50-30-20 method
I made a video on my Youtube channel about the 50-30-20 budget where I go over what it is, what I like about it, and even what I don’t like about it.
You can find out why I think the 50-30-20 method is the best budget for beginners below:
What is the 50-30-20 method?
The 50-30-20 budget suggests that you spend your money as follows:
50% to your needs
- Your needs are basically your expenses that you have to pay in order for your basic needs to be met.
- For example:
- Rent/mortgage payment
- Minimum payments on your debt
- Electricity/utilities/water bills
30% to your wants
- This is exactly what it sounds like – you get 30% to spend on whatever you want!
- For example:
- Entertainment/going out
- Eating out
20% to savings
- Your savings range from short-term to long-term. Basically, this amount is going towards taking care of the future you.
- For example:
- Emergency savings
- Retirement contributions
- Big purchases: car, house, etc.
Why is the 50-30-20 method the best budget for beginners?
So, why do I think the 50-30-20 method is the best budget for beginners?
- When you’re putting together your very first budget, you want it to be simple. Anything complicated will just overwhelm you and make you want to give up on a budget entirely.
- You only have to categorize your expenses into 3 categories: wants, needs, or savings. Again – this simplifies tracking your spending, which can be a daunting task in and of itself.
You have room for your ‘wants’
- For some reason, the personal finance space gets a bad rap for telling others that you shouldn’t be spending on wants at all. This simply isn’t true – allowing yourself to spend on wants can keep you sane while you’re on a budget, making it a more sustainable change.
- When beginners immediately cut out all fun spending, it can be helpful at first. However, in the long run, doing so can lead to resentment which might lead to uncontrollable spending later on. Allowing yourself to have room for wants in your budget allows you to put a cap on how much you can spend each month while still making progress on other parts of your finances.
The guidelines can serve as markers of your financial health
- When categorizing your expenses into the three categories (needs, wants, savings), you can instantly see whether you’re doing well with your finances or not.
- For instance, if your needs constantly fall at or below the 50% mark, you know you’re on the right track. However, if your needs are considerably above the 50% mark, you know you need to zone in on that category and make some changes.
Why is the 50-30-20 method not for everybody?
It may be too general
- Yes, I mentioned its simplicity as a plus. But it might actually be too simple for some.
- There are just some expenses that might not fit into a need, want, or savings category. Instead, you may want to get more specific with your spending categories.
Your goals don’t align with the 50-30-20 split
- The 50-30-20 method is a great beginner’s budget, particularly to keep your finances in balance. However, if your finances aren’t balanced to begin with, the 50-30-20 split might not be ideal for the moment.
- For example, 30% allocated to your wants might be way too much, especially if you’re deep in debt. Instead, you might want to lower your wants budget temporarily so you can throw extra money at your debt.
Even though it’s not a perfect method, I still think that the 50-30-20 budget is the best budget for beginners.
Have you ever done the 50-30-20 method before or are you doing it right now? What do you think of it?