50/30/10/10 Budget


The 50/30/30/10 Budget

Budgets... everyone's favorite topic to talk about and the easiest thing to accomplish in the world of finance. Says no one. Even as someone who loves finance and tracks spending, I hate keeping a budget. 

It is tough, and it seems as though every month has some emergency that the last month didn't have that you can't plan for. Nevertheless, I think the well known 50/30/20 budget is a great tool, but I have a slight alteration that I prefer.

My preferred budget layout is challenging, but it provides some groundwork for both immediate financial stability as well as future financial stability.

My alteration to the 50/30/20 budget is 50/30/10/10.

The categories for the 50/30/10/10 budget are based on after-tax income, and go as follows: 50% for Needs, 30% for Wants, 10% for Cash Savings, and 10% for Investment Savings. I'll explain these categories so you can understand why I believe all four categories are necessary.

50% Needs:

The largest category, yet one of the most over-budget categories in this layout. How can needs be over budget, they are needs, right? 

What fits into the category of needs? Mortgage, utilities, car loan/insurance, health insurance, student loans, other loans, tithing, medical payments, some apparel purchases, groceries, gasoline.

The list could go on, but we'll stop there. As someone that has worked in lending for over five years, I see where most people spend their money, and I know how much money they spend on particular items.

A home, for example, or maybe a better word, would be a shelter. A home/shelter is definitely a need, but owning a home is not a need, because there are options to rent.

That being said, I believe it is generally more beneficial to own a home opposed to renting because your home can be utilized as an investment later on, but that is for another post.

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Despite my belief that owning is generally better than renting, most people spend too much money on their home. Just because a mortgage company can go up to 45% or 50% Debt to Income doesn't mean that you should do that.

(If you don’t know what debt to income means - to put it briefly - it is your required monthly debt payments divided by your gross monthly income.)

If you already own a home, the likelihood of you being "house poor" is also high. When I say house poor, it does not mean that you owe more on your home than it is worth, that term is "underwater." When I say house poor, I mean you spend way too much of your monthly income on your mortgage payment.

According to the Bureau of Labor Statistics released on 4/26/2019, Americans spend 33% of all expenditures on their homes. You can see those statistics here. If you think about this budget layout, we need to be buying smaller and less expensive homes.

In 1973 the average home size was 1,658 square feet while the average family size was 3.01 individuals. This equates to 551 SF/Person. As of a poll taken in recent years, the average home size is 2,687 SF, and the average family size is 2.54 individuals. This equates to 1,058 SF/Person.

I find this data very interesting. Probably because I support much smaller living, but whether you support minimalist living or not, this data should shock you, because America has more than we have ever had. Twice as much in fact!

My suggestion is to get your home cost down to 20-25% of your take-home income. Doing so will allow you to manage this budget layout without overspending in the Needs category.

I can already see this budget challenging us as a developed nation founded on Capitalism. This housing rule will really challenge some people.

Other people will be challenged by the fact that they have a car payment that takes up 5% of their take-home income by itself. If this is the case, sell the car and buy a used one that you can pay for with cash or have a very minimal loan for.

Cars are depreciating assets; we need to begin treating them as such.


Learn to haggle and negotiate. This will be important while buying virtually everything. I would suggest reading Never Split the Difference by Chris Voss. It is a great read that can change your perspective on how you interact in a scenario needing negotiation.

30% Wants:

The second category is Wants. I believe this section of the budget layout is reasonable. I'm not suggesting that you save 40% of your income. The wants section allows you to spend money on things that are not absolutely necessary.

Though I tend to live more of a minimal lifestyle, I still struggle with the desire to have new things. So when I buy a pair of running shoes that I can benefit from but don't necessarily NEED, it is the Wants category that comes into play.

Have some grace with yourself. The wants category allows you to have a little bit of fun. Because let's be honest, life is too short to be too serious all the time. We all need a little bit of fun once in a while.

The 30% just makes sure you don't get carried away...


10% Savings:

Why is it that saving money is so enjoyable to do, and yet it is one of the hardest things to do? Why don't we place more priority on it than on other items? Maybe we should just include this in the Need category...

But seriously, it can be so hard sometimes to save. The best way to do this is to automate the process. You know what days your paychecks are rolling in.

Set up automatic transfers from your account on these days. That way, you don't have to worry about it, your savings grows, and you get used to living without those funds.

If you have something that you are specifically saving for, then you will know your goal. If you are just saving for an emergency fund, I would suggest no less than $10,000 in savings for an emergency and no more than 6-months of expenses.

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Why do I put a limit on how high you can get your savings account? Because there can be a point when you're saving and there is no purpose behind it.

6-months of expenses should be more than enough to get you a new job if you happen to lose yours or if some other crisis occurs. Additionally, this isn't the 1970's when interest rates on savings accounts were around 10%. If that were the case, I would say save all you can.

Money needs to work. It is intended to work. There is no other purpose for money other than to work for you.

It is a tool and an object that is needed to live in our world. Don't view it as any more than that. Money in a savings account provides a sense of stability if something bad happens. Other than that, it is not working.

Which leads to our next category.

10% Investing:

As mentioned, your money needs to be working for you. Even if you have it put away in some low-risk bonds getting you 2.5%, it needs to be doing something and invested somewhere that is somewhat difficult to access.

There are many ways to invest: the stock market, real estate, equity investments in companies, lending, the list goes on.

Sometimes your money may not be working as you are saving up your investment funds to put towards something more substantial.For instance, if you desire to purchase an investment property.

Typically, a 20% down payment is required (though I would suggest at least 30%). Since most of us don't receive $60,000 gifts on random occasions, you need to save up these funds.

However, if you're saving with a particular investment in mind, I would suggest not doing it all at once, you'll grow weary getting to that large of an amount by saving $500/month or less. Instead, put smaller amounts to work in a variety of ways to get you to that $60,000 goal.

For example, take some of the funds that you have saved and do some stock trading. Find some stocks that you feel comfortable investing in and buy some.


NOTE: I am hesitant to say this because I don't want you to think this is a guaranteed win. Stock trading is high-risk and should only be done with money that you are okay losing. That being said, if you watch the markets consistently and you are patient, you can make significant gains to your investment. 

There are also a host of other investment opportunities available such as peer to peer lending, or real estate investing with as little as $500 through Fundrise. I have personally invested with Fundrise, though it has been too short of a time for me to fully recommend them.

But the opportunity is there for small real estate investment. A third opportunity is through equity investing, where you invest in small local companies that you support or know the owner.

The important thing while you are taking part in all these other investment opportunities is to be mindful of what your final goal is ($60,000 for a down payment on a rental property).

Your goal is allowed to change over time, but don't let yourself get so distracted trying to make money in these other ways that you forget why you're doing it in the first place.

In Conclusion

Give yourself grace. Don't become so consumed with this budget that it overwhelms you and causes significant stress on your family. This sentence is not a cop-out to allow you to throw your hands in the air and give up whenever you're frustrated and want to buy another pair of shoes.

It does, however, allow you to make mistakes, as we all do, and as we all will. The key after making a mistake is to go back to your goals. Remember the reason why you're living according to this budget formula in the first place.

We all desire to be financially free. It is only those who are willing to sustain and continue after making mistakes that will succeed in obtaining financial freedom.