Budgeting with 50/20/30 Guideline

As I work to be better at budgeting, I searched the Internet for strategies for how much I should be spending on various items each month. I like the 50/20/30 strategy which seems reasonable and maybe even do-able.

Basically, you split your after-tax, after-401k take-home income into 3 buckets:

50% – fixed expenses
20% – financial goals
30% – variable expenses

So my after-tax income (now that I’ve maxed out my 401k for the year) is $9500. That breaks down to:

$4750 fixed
$1900 financial goals
$2850 variable expenses

How August Played Out:

$1734 – fixed
$3472 – financial goals
$4294 – variable

Clearly, my variable expenses need to be reduced significantly.

I’m looking to potentially returning to grad school or changing careers and taking very low paid work, which means that I will need to live on much, much lower income (slash none at all.) While I’ll probably have to dig into my savings for a few years to accomplish this (that is the point of having savings), I still want to learn how to spend a lot less. This helps me now too so I can save more to spend when I’m in a lower income job.

Lower Salary Budget: $3k take home per month

$1500 fixed
$600 financial goals (+ whatever extra I save)
$900 variable

September I’ve budgeted $4000 total spending, so I’m $1000 over. I’m going to try really hard in October to hit the above budget. My fixed expenses are in line with a $3000 after-tax income per month spend program, but my variable expenses are out of control.

$900 variable expenses is a very small amount, but it’s a good challenge for October.  In September, my variable expenses will be around $2620 (and that is cutting down significantly from August’s $4294 variable.) October will basically = no spending outside of food, basic healthcare – and walking my lazy bum to the train so that I don’t waste so much money on taxis.

If I can successfully keep my job through the end of October and hit these goals, I can save $5530 in September and $7150 in October, or $12.6k by the end of October. This will get me very close to my $400k net worth goal for the year.  I still want to get to $500k before I have kids, return to school or change careers – but given I’m on the verge of a mental breakdown I think I may have to call it quits early and just try to maintain my net worth through the career change as much as possible.

 

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