Balancing work & leisure spending - 50/30/20 rule

For years, you've poured your heart and soul into climbing the career ladder, pursuing your professional dreams, and securing your financial future.

You've navigated through challenges with the gender pay gap… you’ve pressed ‘pause’ on a career to have a family… or maybe you’ve never had access to financial education and resources in your upbringing.

But there's a persistent struggle – knowing when and how to indulge in well-deserved leisure without breaking the bank. You diligently save and work towards financial goals, but sometimes, that spa day, weekend getaway, or a hobby that feels out of reach.

Which is why we want to share the 50/30/20 Rule—a simple but effective budgeting strategy that breaks down your income into three essential categories:

• 50% for Needs: This portion covers your essential expenses, such as housing, utilities, groceries, and healthcare. It ensures your fundamental needs are met.

• 30% for Wants: Here, you allocate a portion of your income to discretionary spending—things that enhance your quality of life, like dining out, leisure activities, or hobbies.

• 20% for Savings: The final portion is dedicated to your financial future. It includes savings and debt repayment, ensuring you're building a secure financial foundation.

The 50/30/20 Rule in Action

So, how can you effectively apply the 50/30/20 rule to your financial life? To bring this practical budgeting rule to life, you'll need to calculate the 50/30/20 ratio based on your income and categorize your spending. Here's our step-by-step guide:

Step 1: Calculate Your Financial Foundation

Start by getting a clear picture of your financial situation.

If you're a freelancer, this means calculating your monthly earnings after deducting business expenses and taxes. For those with regular paychecks, it's simpler—check your payslip for the amount deposited into your account each month.

If deductions like health insurance or pension contributions are automatically taken out, add them back in. This helps you understand your financial starting point.

Step 2: Unveil Your Spending Patterns

Then take a closer look at where your money goes each month.

Review your bank statements for the past 30 days and categorize your expenses into three buckets: essentials (needs - 50), those little extras (wants - 30), and savings (20).

Again, the ‘essentials’ are the must-haves, like rent. ‘Wants’ refer to the enjoyable extras, like dining out. And ‘savings’ include paying off debt, contributing to your retirement fund, or building a financial safety net.

Step 3: Tailor Your Budget for Financial Freedom

Now that you understand your monthly allocations for essentials, wants, and savings, align your budget with the 50/30/20 rule.

Start by examining your monthly spending on wants. Remember, according to this rule, wants are not extravagances but the simple joys that enrich your life.

Since cutting back on essentials can be challenging, focus on identifying areas within your wants where you can make adjustments while staying within the 30% zone of your take-home income.

The more you optimize your wants, the closer you'll come to reaching your 20% savings goal.

Finding Financial Freedom…

Julie Forten, Partner and Wealth Manager at Northstar Financial Planning, shares her inspiring story of discovering her authentic professional space, where the boundaries between work and life blur seamlessly.

Julie's career transformation has not only been personally fulfilling but has also empowered her to guide women through confidence challenges and significant life transitions. In this episode, she sheds light on the evolving perspective of women and money within the financial industry and Northstar Advisors' groundbreaking approach to recognizing the pivotal role of women in financial matters.

Don't miss this episode that will help reshape the financial landscape for women and ignite your own journey toward empowerment.

Yours in health, wealth, and happiness

Dr. Deborah Ekstrom

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