How to Pay Down Debt with the 50/30/20 Budget

paying down debt

The 50/30/20 budget is a basic budgeting methodology developed by Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan.” This strategy was created to help those new to saving money by categorizing expenses into three basic buckets: Needs, Wants, and Savings/Debt. The idea is that by compartmentalizing expenses, individuals can gain control of their spending.

Many budgeting plans are overly-convoluted and depend on exhaustive spreadsheets or in-depth bank account review. The 50/30/20 budget is an easy way to not only keep your finances on track, but also adequately plan for the future.

50 percent: Needs

According to this budgeting plan, half of your income should go to the essentials (and no, that morning latte doesn’t count). These items include rent, house payments, groceries, insurance, etc.

The most difficult part of this budgeting plan is determining what is a need. Do a gut check, and assess whether forgoing a product or service will have a minor or significant affect on your life. If it’s the latter, then it’s safe to say it’s a need.

For example, while a credit card payment might seem appropriate for the want or debt categories, it can actually be considered a need. If you were to lapse on the minimum card payment, you would seriously damage your credit score — this has vast-reaching financial consequences and could necessitate credit repair services. You need to pay your minimum debt payments or run the risk of lasting financial detriment, so this cost belongs in this category.

Determining what is a need can get confusing, but remember that it’s a large category — hence the 50 percent allotment. While 50 percent seems like a lot at first, remember that it includes more than you might first think.

30 percent: Wants

Oh boy, 30 percent? Now we’re talking! Think of all the frivolous purchases you can make with the financial backing of almost a third of your paycheck — you could practically outfit a whole wall with flat screens with that amount of dough.

Well, not so fast. Much like the previous category, the wants portion of your budget includes a lot more expenses than you might expect. In addition to luxuries such as a tropical vacation or expensive electronics, less lavish wants might include your phone bill, streaming services, dinners out, shopping, and much more.

If you’re honest with yourself, you probably spend far more than 30 percent of your income on wants. It might be time to scale back wants in order to make room for the last, most often overlooked, category: savings/debt.

20 percent: Savings/Debt

The overall goal of this budgeting plan is to make room for the (sometimes unpleasant) act of saving and paying off debt. Many of us put off these expenses because, put simply, they’re not much fun. But, that doesn’t mean they’re not important.

Once again this is a relatively broad category and up for interpretation, but popular examples of savings or debt payments include:

  • Retirement — As long as you’re making money you should be saving for retirement. Especially as Social Security dries up, it’s important to save money while you can.
  • Emergency — Emergency expenses including medical bills or car repair are sure to derail good budgeting intentions. However, as long as you have an emergency fund to fall back on, unexpected costs can be addressed with ease.
  • Debt payments over the minimum — As established above, minimum debt payments are crucial to maintaining a good credit score. But, as long as you’re delegating extra funds to this category, maybe you want to pay more than the monthly minimum, make a greater dent, and pay off debt quicker.

For all its utility in managing finances, the 50/30/20 budget isn’t a perfect science. The rigidity of this budgeting plan doesn’t necessarily account for the nuances of daily spending, nor does it really lend itself to planning and achieving specific financial goals. However, this is a great place to start. Many people lack a budgeting plan entirely, so while this might not be an end-all-be-all budgeting solution, it’s a great place to start.



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