Budget Diary is a series that shows how real people budget by asking them to document their expenses over a typical month and reflect on their spending and saving habits. Want to be featured? Email firstname.lastname@example.org to learn more.
If budgeting makes you flustered, consider the 50/30/20 approach.
It’s pretty simple. You put your take-home pay into three categories: 50% for needs, 30% for wants and 20% for savings and debt. It can be a straightforward, stress-free way to stay on top of your spending without getting lost in a complicated spreadsheet.
Tyler Hood, 27, is a human capital consultant — helping companies design HR and talent programs — and runs a personal finance blog. She has used this budgeting method for three years and sees it as a loose guideline.
“It doesn’t account for everything going on in your life, like moving into a new home, but it helps me put things in perspective,” she says.
To see what the 50/30/20 budget looks like in practice, we asked Hood to break down her spending in December (a month when people tend to splurge on holiday shopping) and reflect on how she did.
Diary entries have been edited for clarity and length.
Name: Tyler Hood.
Occupation: Human capital consultant.
Location: Arlington, Virginia.
Annual salary: $87,500.
Monthly take-home pay (after taxes): $4,800.
Amount I set aside: $2,400 (half of my monthly take-home pay, after taxes).
How much I actually spent: $2,298.40.
What I classified as needs: Mortgage ($1,355.40), utilities ($40), condo fee ($363), credit card debt ($300), cell phone bill ($140) and medical bill ($100).
Editor’s note: Using the 50/30/20 approach, credit card and medical debt are typically categorized under the 20% for “savings and debt,” but Hood considers them needs. Additionally, Hood didn’t include transportation in this category since it’s covered by her company but for most people, this spending would be a “need.”
How I felt about this category: I always set aside approximately half of my take-home pay for things like my mortgage, utilities and other steady bills. A medical bill came up, so I used some of this money to pay for that. While I still followed the 50/30/20 rule, I made a couple of revisions due to the holidays; this month was a little tough since spending was higher than normal. I still had money left over as planned, but that money went to presents.
December savings and debt
Editor’s note: Unlike the traditional 50/30/20, Hood swaps the percentages she puts toward savings and wants. She puts close to 30% toward savings and about 20% for wants.
Amount I set aside: $1,440 (a little less than one-third of monthly take-home pay).
How much I actually saved: $900.
What I classified as savings: I use the 30% as savings (vs. wants) since I’m rebuilding my savings and paying for renovations to avoid increasing debt. I split my savings between three accounts: $480 goes to an online savings account that I don’t have regular access to and the rest ($960) goes to two other accounts that I can access ASAP if needed.
How I felt about this category: I did pretty well, given the holidays. I tend to not touch my savings unless absolutely necessary. I did put extra money ($540) from this category toward my credit card debt (the balance is $3,681) and the medical bill (the same one listed under “needs”), but only to balance out what I was paying for while home with family. Again, December is a little tough because of the holidays so spending was slightly increased, but I was still able to save and pay for the aforementioned items without increasing debt.
How much I actually spent: $961.
What I classified as wants: Groceries and dining out ($150), clothes ($200), Christmas gifts ($500), Netflix ($11), Spotify ($10), household renovation items ($60), dog food and toys ($30).
Editor’s note: Hood categorizes groceries as a “want,” while others using the 50/30/20 plan would likely put them in “needs.”
How I felt about this category: Since it was the holidays and I’m doing home renovations, I was eating out a little more than usual this month. I ended up not spending as much on groceries but probably made up for what I would usually spend on groceries by eating out, which was not the best idea. When it came to this portion, I wasn’t as intentional with my spending habits as I typically am.
Overall, how did you feel about using the 50/30/20 budget in December?
While keeping the holidays in perspective, I did well overall. I was able to put a little money toward my credit card debt and still buy gifts, pay for a couple of home renovation items.
In terms of spending, how did December compare with other months?
This month was slightly higher due to the holidays but I still did pretty well considering. I count being able to save some money or pay off some debt as a win any time.
Do you plan to continue with the 50/30/20, and if so, why?
Yes, I do. It helps me stick to a savings plan and helps me separate my needs from my wants. Although I’m sure I could accomplish what I want a different way, using the 50/30/20 rule gives me a solid number to aim for when considering my bills, savings and entertainment needs. If I go a little over or have a high-spending month, then I can substitute wherever necessary.