Budgeting for People who are Looking to Build Wealth

Wooster Corthell |

“A budget doesn’t limit your freedom; it gives you freedom.”
– Rachel Cruze

In today's dynamic economic landscape, financial stability is a goal that many aspire to achieve. Whether you're a fresh graduate starting on your career journey or someone approaching retirement, creating an adaptable budget is crucial. One of the most celebrated and straightforward budgeting methods out there is the 50/30/20 rule. But with the changing financial landscape, is it still as relevant as it once was? Let's delve into this rule and explore how it can be molded to fit different income levels and financial goals.

Understanding the Basics: What is the 50/30/20 Rule?

The 50/30/20 rule is a simple principle. Here's a breakdown:

  • 50% of your income should go towards necessities like rent, utilities, and groceries.

  • 30% is allocated for discretionary expenses, such as dining out, entertainment, and other non-essential items.

  • The remaining 20% is for savings or paying off debts.

It's a guideline that provides a clear, basic structure. However, the rigidity of this rule might not always align with everyone's financial situation.

Adapting the Rule for Different Income Levels

For someone earning a lower income, the fixed percentages might be challenging. Housing alone might consume more than 50% of their salary, leaving less for other necessities. On the other hand, a high earner might find that they only need 40% of their income for necessities, allowing them to save or invest a larger portion.

To adjust the rule:

  • Those earning a lower income might consider a modified 60/20/20 approach.

  • Individuals with a higher income can opt for a 40/30/30 distribution.

Aligning with Financial Goals

Financial goals differ from person to person. Someone might prioritize travel over homeownership, while another might be laser-focused on early retirement.

To integrate the 50/30/20 rule with varying goals:

  • If saving for a short-term goal like a vacation, consider allocating more to savings for a particular period.

  • For long-term goals, such as buying a house or retirement, adjustments might involve increasing investment percentages or exploring high yield saving options.

The Flexibility of 50/30/20 in Different Life Stages

Life events like having a child, pursuing further education, or facing unexpected medical expenses can dramatically shift financial priorities. Thus, the rule should be flexible and revisited often. For instance:

  • A young professional might prioritize paying off student loans, so the 20% savings might be directed there.

  • A family with children might adjust the discretionary spending or increase the portion allocated to necessities.

A family with children might adjust the discretionary spending or increase the portion allocated to necessities.

Don’t Forget

Regardless of how you adjust the 50/30/20 rule, the ultimate aim remains the same: financial stability and freedom. By continually reflecting on and revising your budget, you're taking control of your financial destiny. It's a journey worth embarking upon, filled with lessons learned and milestones achieved.

Take the Next Step with Wooster Corthell

Embracing financial freedom requires more than just a budgeting rule. It demands a holistic understanding of your financial situation, goals, and strategies to achieve them. Ready to dive deeper? Book a meeting with an advisor or follow us on LinkedIn to stay updated with the latest financial insights. Your journey to financial empowerment begins today!