The Three Budget Pillars
50% - Needs
Essential expenses you must pay no matter what: housing (rent or mortgage), basic utilities (water, electricity, gas, internet), basic groceries, work transportation, mandatory insurance, and minimum debt payments.
30% - Wants
Expenses that improve your quality of life but aren't essential: entertainment (streaming, outings), restaurants and fast food, hobbies, non-essential clothing, travel and vacations, and home improvements.
20% - Savings & Investment
Money for your future: emergency fund (initial priority), savings for specific goals, retirement investments, extra debt payments, and education and personal development.
How to Adapt the Proportions
The 50/30/20 is a guide, not a rigid rule. If you live in an expensive city, your needs might be 60%. The important thing is to adjust other categories proportionally.
If you have high debt, consider a 50/20/30 where 30% goes to eliminating debt. Once debt-free, you can return to the traditional format.
Common Mistakes
- Confusing wants with needs (Netflix is not a need)
- Not including irregular expenses (car maintenance)
- Forgetting automatic savings
- Not reviewing and adjusting monthly