Budgeting is a key part of managing your finances effectively, but with so many budgeting methods out there, it can be hard to figure out which one will work best for your lifestyle and goals. If you’re looking for a simple, straightforward approach to budgeting that allows for flexibility while still promoting savings, the 50/50 budget might be the perfect fit for you. Here’s how the 50/50 budgeting method works and how you can use it to take control of your finances.
1. What is the 50/50 budget?
The 50/50 budgeting method is a simple and balanced approach to managing your money. It involves dividing your income into two main categories:
- 50% for necessities: Half of your income goes toward essential expenses that you need to live and maintain a basic standard of living. This includes rent or mortgage payments, utilities, groceries, transportation, insurance, and any other mandatory bills.
- 50% for savings and wants: The other half of your income is split between savings and discretionary spending. This category includes contributions to savings accounts, investments, and any “wants” or non-essential expenses like dining out, entertainment, travel, and hobbies.
Key takeaway: The 50/50 budgeting method simplifies your finances by focusing on two main categories. It makes it easier to manage your money and prioritize your spending and savings goals.
2. How to set up the 50/50 budgeting method
To get started with the 50/50 budgeting method, follow these steps:
Step 1: Calculate Your Total Income
Begin by determining your total monthly income after taxes. This includes your salary, wages, freelance income, side hustles, and any other sources of income. Make sure to use your net income (after taxes and deductions) for accurate budgeting.
Brigit tip: If your income varies each month, calculate an average based on the past six months to create a more reliable budget.
Step 2: Identify your necessities
Make a list of all your essential expenses—those that you must pay each month to maintain your standard of living. These might include:
- Rent or mortgage payments
- Utilities (electricity, water, gas)
- Groceries
- Transportation (car payments, gas, public transit)
- Insurance (health, auto, renters/home)
- Minimum debt payments (credit cards, student loans)
- Internet and phone bills
Add up the total amount of your essential expenses to determine how much you need to allocate for necessities.
Brigit tip: If your necessities are more than 50% of your income, look for areas where you might be able to cut back or reduce your expenses.
Step 3: Allocate the remaining 50%
The other 50% of your income is allocated for savings and discretionary spending. Decide how much of this portion you want to dedicate to savings versus wants. Ideally, aim to prioritize savings while allowing yourself some room for fun and non-essential expenses.
Brigit tip: A good rule of thumb is to allocate at least 20-30% of your total income to savings, leaving the remaining portion for discretionary spending.
Step 4: Automate your savings
To make saving easier and more consistent, automate your savings contributions. Set up automatic transfers from your checking account to a savings account, retirement fund, or investment account each month. This ensures that you’re consistently saving and helps reinforce the habit of paying yourself first.
Brigit tip: Consider using a high-yield savings account to maximize the interest you earn on your savings.
Step 5: Monitor your spending
Track your monthly spending to ensure you’re sticking to your budget. Use a budgeting app, spreadsheet, or financial tracking tool to keep an eye on your expenses. Make adjustments as needed to stay within your budget and avoid overspending.
Brigit tip: Review your budget regularly to ensure it still aligns with your financial goals and lifestyle. Adjust as necessary if your income or expenses change.
3. Benefits of the 50/50 Budgeting Method
Simple and easy to implement
The 50/50 budgeting method is straightforward, making it easy to set up and follow. With only two main categories, it simplifies budgeting and helps you focus on your priorities.
Promotes savings and financial goals
By allocating 50% of your income to savings and discretionary spending, the 50/50 budgeting method encourages you to save regularly and build a strong financial foundation. It helps you prioritize savings while still allowing for some flexibility in your spending.
Flexible and adaptable
Unlike more rigid budgeting methods, the 50/50 budgeting method allows for flexibility. You can adjust the amount allocated to savings versus discretionary spending based on your financial goals and needs. That makes it easier to adapt the budget to different circumstances.
4. Challenges and tips for success
Balancing necessities and wants
One challenge of the 50/50 budgeting method is ensuring that your essential expenses don’t exceed 50% of your income. If you find that your necessities take up more than half of your income, consider cutting back on non-essential expenses, looking for ways to reduce costs, or finding additional income sources.
Brigit tip: Review your essential expenses regularly to identify areas where you can save. For example, consider negotiating lower bills, switching service providers, or cutting back on energy usage.
Staying disciplined with discretionary spending
While the 50/50 budgeting method provides flexibility for discretionary spending, it’s important to avoid overspending in this category. Set limits for non-essential expenses and stick to them to prevent exceeding your budget.
Brigit tip: Use cash or a prepaid card for discretionary spending to help you stay within your budget and avoid overspending.
The 50/50 budgeting method is a simple and effective way to manage your finances, prioritize savings, and enjoy a balanced approach to spending. By dividing your income into two main categories—necessities and savings/discretionary spending. Start today by calculating your income, identifying your essential expenses, and setting up your budget to achieve your financial goals.
