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How To Budget In 6 Easy Steps (50-30-20 Method)

Your life is about to get better with these easy ways to budget. What's a budget? A budget is a plan on how to spend your money. There are many ways to budget, but not one perfect way. Keep it simple by thinking about only three things: your income, expenses, and savings.

No two people budget the same way. However, there are a few general guidelines that you should follow when creating your budget. Of course, the best budget is the budget you'll stick with. So, the most important thing is having a plan that works for YOU.

Hands taking money out of a wallet

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How To Budget In 6 Easy Steps


Disclaimer: I am not a financial advisor. All information, including any ideas, opinions, views, commentaries, or suggestions expressed or implied herein, are for informational or educational purposes only and should not be construed as personal financial advice.


1. Start with the most important category first - your NEEDS

About 50% of your income after tax should go into this category - your needs.

Food, utilities, shelter, and transportation.

  • Open a spreadsheet and note down all your needs.

Here's a list of everyday monthly expenses you can add to your needs list:

  • Housing/ Rent

  • Transportation

  • Car Insurance

  • Health Insurance

  • Life Insurance

  • Food/ Groceries

  • Utility Bills

  • Cell Phone

  • Clothing

  • Childcare/ School Costs

  • Pet Food/ Care

  • etc.

If you have any other expenses that classify as needs - add them.

  • Add the amount you pay next to each need.

Does this amount to more or less than 50% of your income after tax?

If it's more, you must find a way to cut down on one or more of your needs. You're on the right track if it's less or on par!

Find out how to save money around the house and how to save money on groceries with these easy-to-follow tips.


2. Allocate 30% of your income to WANTS

Needs are essential for you to live and work. Wants bring you joy when life gets too much. Wants can include travel, entertainment, that new pair of shoes you've been eyeing, a new phone, or another update to your plant collection.

  • List all your wants for the month on the same spreadsheet.

If it takes up more than 30% of income, look closely at all your wants and evaluate if you want it that badly. Ask yourself some questions:

  • Why do you want it?

  • Would you be happy with a cheaper version of it?

  • Would it go on sale sometime in the future where you could buy it at a discount?

  • Can you buy it second-hand at a reduced price?

  • Can you live without it for another month? If yes, then move it to the next month.

The point isn't to remove all pleasure from your life by only catering to your needs. If you're not going to treat yourself every once in a while, you probably won't stick to your budget.

I'd rather you set realistic goals for yourself so you won't have a problem following your spending plan.


3. 20% of your income must go to SAVINGS and DEBT repayment

Use 20% of your after-tax income to save for the future and pay off debt.

Paying off debt needs to be a top priority. Debt means you pay more than the cost of the original purchase, and interest payments will cut your income.

After allocating your wants and needs, roughly 20% of your income should be left.

  • Still using the same spreadsheet, add the last amounts in your savings and debt rows.

I cannot stress enough how important it is to pay off debt as fast as possible.

Set up your accounts so automatic monthly payments are going towards paying off debt or into a savings account - no excuses.


4. Budget to ZERO before the month begins

Let's go back a bit. List the things you've been spending your money on.

  • Take your bank statements or have your banking app open on your phone

  • Open a new spreadsheet

  • Note down every single expense for the past three months.

This gives you a clear list of where your money went. Shocked about the things you've bought? I have to admit; there are still some months where I surprise myself when doing this...the things I spent money on...sheesh.

  • Have a look through your list and cross off things you don't need going forward and don't want to continue spending money on.

  • Go back to the sheet you created in Step 1, and add anything from this list (step 4) that you might have missed that qualifies as wants and needs.

Now you have a complete budget list.

  • BEFORE the next month starts, allocate your income next to every expense on your budget list.

What this does is it gives your money a purpose. You are "spending" your money before you have it to see exactly where each dollar goes.

Once you see it in writing, you'll be less likely to overspend.


5. Use cash if you constantly overspend

If you are constantly overspending on your (grocery) budget, go to the bank and draw the cash amount you've budgeted for that category.


  • If you have a $400 grocery budget, draw $400.

  • Put the cash in an envelope and use only this money when buying groceries.

Don't use your cards or cash from a different envelope) - once your (grocery) envelope is empty, stop spending - duh!

Check out these fantastic budget binders from Amazon. With these, you'll quickly get into a money-saving mindset!


The Bottom Line

Your budget is a tool to help you, not to keep you from enjoying life. A good budget is one you'll stick with - so make sure there's money for fun. Start slowly but be strict with yourself. It'll take time to get used to living with a budget, but in the long run, you'll thank yourself for starting sooner rather than later.


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