How to Create a 50-30-20 Budget (Free Excel Template)

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I started using the 50-30-20 budgeting method in 2011 when I began working full time in Paris. After looking on the internet, I created a very simple Excel document to help me manage my finance.

Since then, my life and needs have evolved and I wanted to read Elizabeth Warren’s book, the creator of this money managing method: All Your Worth: The Ultimate Lifetime Money Plan. It’s very straightforward but I wanted to find more tips about budgeting so I could share them with you.

Why Budget?

My budget has helped me overcome hardships in the past (separation, illness…). Having one means having all the cards in hand to make good decisions that have an impact today, but which might also have one for the next 25 years. Getting in control of your money is an insurance policy against life accidents and an accelerator for your projects.

The most important thing is to spend less than what you are earning. The first step is to eliminate bad debts and then you can go on to create wealth. Making your budget will not instantly change your life, but it does provide a solid foundation on which to base your financial decisions.

Making your first budget

To start making your budget, you have to go to the source of it all: payslips and account statements.

Choose a standard month and start by writing down your net employment income as well as all other recurring income (family allowances, invalidity pension…). And then make three columns: needs (50%), wants (30%) and savings (20%). At the top of the columns, enter the amounts corresponding to the different categories.

Now take your bank and credit card statements and categorize your expenses. Sure, it’s tedious but there is no better way to get an accurate picture of your expenses. We often remember the amount of our recurring bills but it’s difficult to estimate how much we spend exactly on clothes or in restaurants.

For those who prefer to do this exercise using a computer, I have prepared a free Excel template to create your own 50-30-20 budget.

Here are some tips to help you categorize your expenses.

Needs – 50%

Sometimes, you may get the impression that everything fits in this category because it is difficult to imagine your expenses differently. But you have to be very strict with yourself and choose only what is essential to your life. These are all things that you would go above and beyond to pay even if you lost your job, such as:

  • Utilities
  • Rent or mortgage
  • Main means of transportation
  • Groceries
  • Insurances
  • Any service for which you are under contract (cannot be cancelled).
  • Medication
  • Basic telephone and internet services
  • Minimum payments on your debts
This is how I allocate my “needs” expenses for 2020.

Wants – 30%

Just because you live on a budget, it doesn’t mean you can’t have fun. It is very important to have an area of freedom and to know that pleasure still has a place in your life. It’s like for diets, it takes cheat days to balance everything out. Being able to spend a little for my enjoyment helps me not to go on a shopping binge because I am feeling deprived.

This category is for your pleasure, you can do anything you want with it as long as you do not overspend. The key is to examine your desires: maybe you delight yourself with a fancy coffee every morning or your thing is to go to a trendy restaurant once a month or even to take a nice trip once a year. Whatever you choose is OK, as long as it’s what makes you happy.

Since 2018, I have a detailed Excel document tracking my expenses, when I reviewed the previous years it made me ponder on how I spend my money. For example, in 2018 I spent almost $2,500 in restaurants. It is an amount which is hard to understand when you are spending $10 here and $20 there but it does add up! Retrospectively, I would have been happier with another trip rather than spending mindlessly my money because I’m too lazy to cook.

As you can see, restaurants are still a big part of my spending. Bringing lunch to work is still a work in progress.

Savings (or Debt Repayment) – 20%

Saving is not boring! This very important part will make it possible for you to no longer live from one paycheck to another. With time, it will allow you to turn your dreams into reality. It may very well be that your current situation does not allow you to set aside 20% of your income, in this case determine the amount you can set aside every month.

In this category, I put:

  • Transfers to my savings account
  • Contributions to my employer’s pension plan
  • Contributions to my TFSA and my RRSP
  • Stock purchases
  • If you have debts, all repayments that go beyond the monthly minimum will be recorded in this category. It may seem counterintuitive but you’re saving money by avoiding the high interest rate of your creditor. Elizabeth Warren suggests setting aside $1,000 as an emergency find before paying aggressively your debts.

I do not keep track my contributions to the mandatory Québec pension plan (QPP).

Each year, I set aside all of my tax return which helps me boost my savings

What to do if your budget is out of balance?

Do not worry if your numbers don’t seem right, it is proof that you needed this exercise. Praise yourself for taking the first steps towards better habits. My first budget in 2018 was out of balance, I was in the red! The budget helped me to see where I needed to make efforts to improve my financial situation.

Not all changes can be made in one day, it is a long process. For example, I found out that I was paying too much for my cellular plan and my internet service. At first, I inquired for rates at competing companies and I called my provider to try and negotiate a better price. When my annual contracts ended, I switched companies, which resulted in savings of about $1,000 in 2019. I am also trying to create new habits, such as preparing lunch bags or making own coffee at work. Small steps that will pay off in the long run.

Better financial habits that show, now I am able to save even more than planned.

You may find yourself in a situation where the 50-30-20 allocation is not possible because your obligations weigh too heavily on your income. In this case, you can set your own percentages according to your priorities: do you prefer to sacrifice your discretionary spending or your savings? The answer is up to you, but it would be better to keep the three budget categories even if you have to allocate to one of them as little as 5% of your income. It is important to save but it is also important to have fun!

I hope this article helped you, don’t hesitate to comment if you have any questions!

By Cynthia

Montréalaise en escale à Paris.

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