The Simplest Budget of All

Written by Melinda Wildes, Workforce Specialist in NVME’s Midcoast Region, with Tina Ellis, New Ventures Maine graduate and recipient of the Gilda E. Nardone Scholarship 
Clock with coins stacked up next to it.
Have you promised yourself that this is the year you will finally start off with a budget?
Do you spend money and not remember where it went? Do you worry that you won’t be able to pay all your rent or mortgage on time? Have you ever used a credit card to buy groceries?
It’s time to take control of your spending. The following exercise will help you decide where your money will go to achieve your goals and reduce the stress.

Budgeting can be simpler than you thought with these three easy steps:

  • Step #1: Calculate your “take-home pay” or net income for an average month.
  • Step #2: Divide your expenses into three categories:
    • 50% for your basic needs. You need a roof over your head, food on the table, transportation (car, fuel, insurance, registration), water, heat, electricity, and medical care (insurance, co-pays, prescriptions). You also need to make minimum debt payments.

    • 30% for what you want: cable TV, cell phone, meals out, trips, new clothes, new sports equipment, and other things you choose to spend money on. You can see that many things most of us spend our money on are this category.

    • 20% to pay down debt if you have it, and build up savings when you are debt-free.
  • Step #3:  For each paycheck, multiply the net amount by 50 percent, 30 percent, and 20 percent. 50% of your check will pay for only the items listed under your necessities, 30% for your wants, and 20% for any additional debt payments and savings.

The challenge is to identify personal choices you make that use up your money before you can pay for your necessities. Your priorities may have become misaligned and are causing you a great deal of stress. With this three-step budget, you will identify unnecessary expenses and achieve your financial goals.
Looking for help learning how to budget, reduce your debt, or build your savings? Check out our upcoming tuition-free workshops and trainings near you!
The Balanced Money Formula, known as the 50/30/20 formula, is a budget framework outlined in All Your Worth: The Ultimate Lifetime Money Plan by Elizabeth Warren and Amelia Warren Tyagi (2006).