How to Budget Using the Balanced Money Plan (50-30-20) Method

In 2005, Elizabeth Warren and her daughter Amelia Warren Tyagi, wrote a book called All Your Worth, and in it they describe the Balanced Money Plan; a simple formula that promises to help people determine how much of their paycheck they should be spending and how much they should be saving.

Since 2005, the Balanced Money Plan has taken the personal finance world by storm, and is often referred to as the “50-30-20 rule”. To keep things simple, I’ll refer to the Balanced Money Plan by its original name throughout this post.


This post is all about how to budget using Elizabeth Warren’s “Balanced Money Plan” budgeting method.


Simply, the Balanced Money Plan divides your monthly, after-tax income into three categories:

  1. Your Must-Haves (the things you need)
  2. Your Wants (the stuff that’s just for fun)
  3. Your Savings (the money you save)



Each category has very specific guidelines. Let’s jump right in to each.


1. Your Must-Haves: 50%

According to All Your Worth, 50% of your money should go toward your Must-Haves (or your needs).

So, what are the Must-Haves?

There are three simple guidelines that can help us decide what qualifies a Must-Have:

  • Could you live in safety and dignity without this purchase (at least for a while?)
  • If you lost your job, would you keep spending money on this?
  • Could you live without this purchase for six months?

Let’s consider a mortgage, or rent, for example. It would be tough to live in safety without your home, and if you lost your job, you’d still, presumably, be spending money on your home. Lastly, you can live without this purchase for 6 months, but you know you’d do everything in your power to avoid that if your home was ever in jeopardy. These justifications make your mortgage or your rent a Must-Have.

A few additional examples of Must-Haves:

  • Utilities (Gas, Water, Sewer, Electricity, etc.)
  • Basic Cell Phone Service
  • Homeowner’s or Renter’s insurance
  • Health Insurance
  • Car Insurance and Gas for car
  • Basic food needs
  • Student Loan payments
  • Ongoing legal obligations (e.g., child support)

So why 50%? Elizabeth and Amelia claim that 50% is an appropriate amount to allocate to your Must-Haves for 3 reasons:

  1. It is sustainable. “It leaves you with plenty of money for the rest of your life. Enough for fun and enough for the future.”
  2. It is safe. If you were to lose your job, your unemployment check could cover your basic needs for a few months. “In most states, unemployment insurance covers roughly 50% of your previous salary, up to certain limits”. Likewise, if you were in a serious accident and were unable to work, most disability policies would cover about half of your salary. Really, keeping your Must-Haves at 50% of your money gives you flexibility when the unexpected occurs and life happens. If your Must-Haves make up more than 50% of your income, maintaining your basic needs would be more difficult to manage when tough times strike.
  3. It has been tested over time. Elizabeth and Amelia claim that 50% of your money for Must-Haves is a formula that’s worked for Americans for many years. “A generation or so ago, most families spent half (or less) of their incomes on the Must-Haves”. This led to great savings and ultimately people were able to get rich slowly, over time.

The bottom line: 50% of your money should go toward your Must-Haves or your Needs.


2. Your Wants: 30%

Here’s where we have fun with our money: 30% of your money should go toward your Wants.

“This is the place for all the treats and extras, the things that give life spice.” –All Your Worth

The purchases that fall into the Wants category are entirely up to you! Whatever floats your boat.

A few examples of Wants:

  • Hair cut/color
  • Movies
  • Video games
  • Car wash
  • Starbucks
  • New running shoes

You can use this 30% to spend however you please, but once that 30% is gone, there’s no more spending on the fun stuff.



3. Your Savings: 20%

Here’s where we allocate the last 20% of your money: Savings. Why 20% for savings, you ask?

All Your Worth recommends saving 20% for the following reasons:

  1. So you can stop worrying. Imagine if every time a financial emergency arose, you didn’t have to worry about how you were going to fund it, because you knew you had enough saved up to cover it. Having to pay for the unexpected things in life is never fun, but it’s a whole lot worse when you’re not sure how you’ll afford them. Saving helps protects you from the panic of uncertainty in difficult financial times.
  2. So you can pay off your past. Part of this 20% is meant to go toward your debts. Instead of using credit to pay for debt, you’ll use the cash you saved. This will not only help you lessen and eliminate any debts you owe, but using your savings to pay down your debts will also help ensure that you don’t get into any more debt.
  3. So you can grow older in comfort. It’s simple, really. Save for retirement now, so you can eventually quit working and live off what you’ve saved for yourself over the years. Or don’t. And work for your entire life. It’s up to you.
  4. So you can build riches to last a lifetime. Consistent, gradual savings over time leads to wealth creation.



“Any rich person will tell you: It’s not how much you make, it’s how much you keep.” – All Your Worth



Here’s an example of the Balanced Money Plan that you could apply to your finances:



Final Thoughts

Next time you’re looking into your finances, check to see just how much of your monthly, after-tax income goes toward your Must-Haves, your Wants and your Savings, and do your best to get those amounts near or close to the percentages of the Balanced Money Plan.

If your Must-Haves and Wants take up a significant portion of your income and affect your ability to save, consider giving them a second glance and cutting back on what you can. Likewise, if a large portion of your monthly income goes to savings, that’s great, but make sure you’re still finding time to enjoy life while saving so much.

And lastly, If ever you find that your life’s circumstances make it difficult to meet the criteria of the Balanced Money plan (a new baby is on the way, a spouse loses a job or a loved one faces a serious illness) and your Must-Haves exceed 50% of your income, that is OK: “All Your Worth is designed to last a lifetime, and that means it is flexible enough to handle the ups and downs in life.”

What do a new baby on the way, a spouse losing a job and an ill loved one have in common? “They are temporary”, says All Your Worth. And because they are temporary, it is okay for your money to be a little off-balance during this time. When everything is back to normal and steady again though, it is imperative to get your Must-Haves back down to the 50% mark. If you are going through something similar that is throwing off your balance, here are 2 things you can do to protect yourself during these times:

  1. Build a super-strong safety net. Savings will be your best line of defense in the event things go wrong. Since your Must-Haves are higher than normal right now, you should be paying those first, and then putting money toward your savings. Then put a remainder towards your Wants if there’s money left over, but Wants come last during times like these.
  2. Set a goal for when you will get your Must-Haves balanced. Set a goal so you have something to work toward. The end goal is to have your money balanced again soon, and having a set goal will encourage you to prioritize your money effectively and will help you get out of the woods more quickly.


This post was all about how to budget using Elizabeth Warren’s “Balanced Money Plan” budgeting method. 


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A few years after graduating college, Taylor made it her mission to become debt free. After paying off all $60k of debt, she began to blog about what she's really passionate about: personal development. Nowadays, Taylor blogs about the topics of Mindset, Money, Health, and Career for women. Read more about Taylor here.

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