About half of Americans don’t live on a budget, even though a spending plan can build better financial habits, prompt smart spending adjustments and help families reach financial goals.
Unfortunately, budgeting can be difficult. Budgets often feel overly restrictive, and giving every dollar a job can be tedious and time-consuming.
The good news is, there’s a simple alternative: a 50/30/20 budget. This approach, introduced by Sen. Elizabeth Warren (D-Massachusetts) in her 2005 book “All Your Worth: The Ultimate Lifetime Money Plan,” allocates 50 percent to needs, 30 percent to wants or discretionary spending, and 20 percent to savings.
Needs include such essentials as housing, transportation and child care. Savings can go toward retirement, short-term goals and your emergency fund. The rest is yours to spend. This approach is simple and requires big changes only once to automate savings and keep essential costs under 50 percent. After that, you can spend the remaining 30 percent guilt-free.
This budget works best if you have a stable income, live somewhere that allows you to keep necessities under 50 percent, and trust yourself to stop spending when you reach your 30 percentthreshold. If that sounds like you, this budget may give you more freedom while still covering the essentials.
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