Budgeting 101: Easy Money Management with the 50/30/20 Rule and Meditation

22, Feb 2024

Before considering starting a budget a few preparations are in order.

In my free course – Budgeting on the New Moon, I start with a meditation practice to clear your mind, settle your breath, soften your shoulders, and rest your tongue.

I hear you: “I don’t have time for all that esoteric nonsense”. Believe me when I say:  “meditating before you think about money is the greatest gift you can give yourself”.  

Come with me for just a few minutes and try it.  Money Meditation.

You’ve probably heard of the 50/30/20 rule popularised by Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan.  It’s a mindful way to handle your money, but what exactly does it entail, and how can it transform your financial situation. 

Understanding the 50/30/20 Rule:

The 50/30/20 rule, also known as the “needs-wants-savings” approach, is a straightforward budgeting method that divides your income into three main categories: needs, wants, and savings. The basic breakdown suggests allocating 50% of your income to essential needs, 30% to discretionary wants, and 20% to savings or debt repayment.

Caveat:  It is important to note that I am not a complete convert to the 50/30/20 rule mainly due to the state of the Australian economic situation, interest rates and housing issues.  I know of many folks where the ratio is more 70/20/10 depending on their housing situation, addiction to general substances of smoking, alcohol and gambling and their overall wage increase to inflation.

Putting the 50/30/20 Rule into Practice:

Implementing the 50/30/20 is simple:

  1. Evaluate Your Income: Start by jotting down your regular income sources, including salaries and any additional earnings.
  1. Factor in Taxes: Most salary and wage earners have their taxes taken from their gross and are only left with the net wage.  Remember, if you are a sole practitioner in business you need to manage and save for your taxes and only draw the net value allocated to you. The Net income amount is what you base your budget on.
  1. Save and debt reduction 20%:  Debt reduction advice I will leave for another post but for now, prioritise savings by setting aside 20% of your net income and bank it immediately.  Even if you need to re-draw on it at a later stage, get into the habit of banking the 20% as this will build a habit. 
  1. Cover Your Needs (50%): Allocate half of your income to essential needs such as rent, mortgage payments, utilities, groceries, and minimum debt payments. These are expenses you can’t do without.
  1. Indulge in Wants (30%): Reserve 30% of your income for discretionary wants like dining out, entertainment, travel, and non-essential purchases. These are the things that enhance your lifestyle but aren’t vital for survival.

By sticking to this breakdown, you’ll ensure that you’re covering your necessities, enjoying life’s little luxuries, and building a safety net for the future—all within your means.

Paying Yourself First:

An integral part of the 50/30/20 rule is the concept of “paying yourself first.” This involves prioritising savings by setting aside a portion of your income before spending on anything else. By making saving a non-negotiable part of your budget, you’ll cultivate healthy financial habits and work towards achieving your long-term goals.

Does the 50/30/20 Rule Deliver Results?

Whether you’re a student managing a tight budget or a seasoned professional aiming for financial freedom, the 50/30/20 rule is a practical and effective way to manage your money. It provides a clear framework for budgeting and empowers you to take control of your financial future.

Is the 50/30/20 Rule Realistic?

Yes, the 50/30/20 rule is realistic and adaptable to various financial situations. While you may need to adjust the rule to fit your lifestyle and priorities, the core principles of saving, spending, and prioritising remain the same. It’s a flexible guideline that can be tailored to suit your individual circumstances and goals.

Exploring Other Budgeting Methods:

If the 50/30/20 rule doesn’t resonate with you, don’t worry—there are plenty of other budgeting methods to explore. From the 40/30/20/10 rule to the 75/15/10 rule, there’s a budgeting approach for every financial objective and lifestyle preference. Experiment with different methods until you find the one that works best for you.

Beyond the basics:

Automate savings and debt payments to “set it and forget it.”

Remember, the most important thing is to find a budgeting system that works for you and helps you achieve your financial goals.