Experts have long theorised on the best kinds of structures and techniques the average person should use when setting a budget. While there are lots of rules and strategies out there that you can follow, it’s often tough to find the one most ideal for you.  One technique often cited is Elizabeth Warren’s 50/20/30 rule. Though she wasn’t the one who thought it up, the approach was first popularised in her book, All Your Worth: The Ultimate Lifetime Money Plan, which she co-wrote with her daughter, Amelia Warren. As a well-known bankruptcy expert and US Senator, this is certainly a suitable place to start for anyone intent on improving their budgeting techniques. Here’s how to budget like Elizabeth Warren

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You’ll have to take your monthly income (after-tax) and divide it into percentages of 50%, 20% and 30%. Each of these percentages will then be used to meet the requirements of 3 different categories.

The categories are:

a) Needs (50%)

Your needs include things that you absolutely need to spend money on. They are your essentials, such groceries, utility bills and rent. They do not include things you can live without, such as makeup or branded clothes. You should only be spending 50% of your income on your needs. While this can be difficult in big cities where costs of living are much higher, aim to stay as within the bracket as you can.

b) Financial Needs (20%)

This category is dedicated to improving your ‘financial health’. This means putting money into things that will guarantee your financial stability. These things include saving up for retirement, investing and paying off outstanding debt. Use 20% of your income to clear any financial worries you might have. While 20% is not a lot and appears to make little difference, remember that it is progress that wouldn’t otherwise have been made.

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c) Wants (30%)

For budgeting newbies, this category can come as a surprise. Being able to spend money on things that you want is part of the fun of making money in the first place! And being able to spend a specific amount on things you don’t necessarily need takes the guilt out of it. Never will you have to go on a regrettable shopping spree ever again! The 30% dedicated to your wants gives you lots of flexibility to spend your money the way you want.

The 50/20/30 rule goes to show that budgeting doesn’t have to mean sacrificing the things you love. It’s all about setting priorities and being as financially responsible as you can.

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