Do you cringe when you hear the word budget?
I do. I hate budgets.
As I mentioned in the last post about avoiding the PX90 workout approach to finances, budgets give me the jitters. They make me feel like I can never spend any money.
Budgets are dead. Cash flow plans are in.
Introducing the 50/20/30 Cash Flow Plan
Elizabeth Warren—U.S. Senator from Massachusetts—popularized this cash flow plan in her book, All Your Worth: The Ultimate Lifetime Money Plan.
Essentially, the plan is this:
50% of your money should be spent on your needs
20% on savings, and
30% on wants.
Taking a simple, well-balanced approach to managing finances, makes it doable over the long-term. If you are not yet at these ratios, that is okay. Awareness is an important starting point.
Let’s look at the 50/20/30 plan in detail.
Step 1: Find out your monthly take home pay
Step 2: The 50% – Your Essentials
Calculate how much you spend on essentials
- Car payments
- Minimum credit card payments
- (Sorry, cable bills, clothes, etc. don’t belong here!)
Step 3: The 20% – Saving/Debt
- Debt repayment
- Total Savings
- Emergency fund
Step 4: The 30% – Wants
This includes everything outside of your essentials and debt:
- Cable, clothes, gym memberships, dinning at restaurants
(You need to enjoy life – here is the spot for it!)
As I mentioned, awareness is the first step here. Too often we are letting hundreds of dollars slip away each month without realizing it.
For instance, before I worked on our household’s cash flow plan, we were spending over 53% on our essentials and 37% on our wants. Yep, that’s right: simple math shows that we were consistently saving around 10% monthly.
Once we started to track our expenses, we found out how much we were spending on groceries, on restaurants, transportation and housing. And that
information was a game changer!
With just a few adjustments—within a relatively short period of time—we got our essentials down to 37% and our wants down to 30%.
• We rented out our basement.
• We slashed our grocery bill. We stuck our monthly grocery total in a separate account. Once that monthly money is gone—we eat whatever is left in the house!
• We started to be very intentional on dining out. We love food, and we didn’t want to just stop. But, we learned how to eat at places that cost a fraction of the others because, and this was an interesting experiment, we realized that we received the same level of happiness when eating
for half the cost. It’s not about super fancy restaurants.
It’s just about great food and the experience itself. Stay tuned for a post all around how to dine out often and not break the bank!
I like the cash-flow plan, because it gives us balance—not just a balanced ‘budget’ but a balanced life.
Again, if you aren’t at these exact ratios, this cash flow plan gives you something to work towards.
So, that’s your homework: start by finding out your monthly take-home pay (note: if you have a partner, add that together).
Next, examine these ratios. Can you make changes to get within the
Once you have that written out, I will show you how to amp it up (just a little) to make a HUGE, positive change for your future. Stay tuned for the next post (and bring your cash-flow plan with you).