- In today's video we're gonna go over
the 50/30/20 budgeting method and by the end of it,
you're gonna understand who this method works best for
and who it doesn't.
Now I'm gonna explain this method in a way
that's a little bit different than you're probably used to.
I'm gonna use my friend named Fred
and he already okayed the fact
that I can use him in this video.
We first need to agree that there's 24 hours in a day,
do you agree?
I know it's a crazy concept but stay with me.
Fred's nickname is Fun Fred because Fred is the funnest.
I don't even know if that's a real word
but let's keep rolling with it.
And Fred spends the hours of his day based
on the 50/30/20 budgeting method.
Fred's days are broken down like this,
he spends 12 hours a day at work,
he spends another 7 hours a day on fun things,
things like going to concerts, going to sporting events,
going shopping with his bros,
going to eat with his bros,
going on nature hikes with his bros,
I'm not a part of that little bro group he's got going on
'cause they're kinda weird in their bros,
and I ain't a bro, ain't a word either.
And then he spends another five hours on two things,
sleep and then hanging out with this girl
that he's been dating recently, her name is Penny.
Life is really good for Fred right now,
he's absolutely loving it.
Let's take a quick look at what Fun Fred's life
would look like if we turned it
into a 50/30/20 financial budget.
All right, so here is Fun Fred's financial breakdown,
that's a tongue twister.
So if you look at this $4000 in income,
that's pretty much the 24 hours in a day that Fred has.
Now how he distributes his money based
on the 50/30/20 budgeting method
is 50% of his money goes towards necessities.
So in the example that I gave with Fred, that's work
because he got to go to work to make some money, right?
Absolutely, and then 30% of that goes
towards the life enhancement things,
so all that time he's spending with his bros,
I'm sick of talking about his bros but look at that,
that's some pretty expensive nature hikes, aren't they?
It's strange, I wonder what they're doing out there.
Anyways, and then 20% of his income is gonna go
towards debts, savings, and even investments,
and as you see right now,
you don't really see any investments here, right?
So the investment in the example
that I was giving you with Fred,
it's pretty much Penny, because it's a relationship
that you need to spend time working on.
You gotta invest the time in it and right now,
he's not really investing too much time in Penny,
and he does have some debts down here as you can see,
so that's kind of that sleep that's starting to build up,
and the time that he's not spending with Penny
that he's starting to realize, hey,
I kinda wanna spend more time with her.
Fun Fred eventually turns into Frantic Fred.
He came up to me one day all flustered,
I could tell something was wrong,
and he said hey, bro, and I said whoa don't call me bro.
I ain't one of you bro people.
He said, I'm sorry, Jarrad, I said, what's up Fred?
He said, I've got a problem.
I've got a deficit in my sleep.
I haven't been getting enough,
doing the current things that I'm doing.
And then also I wanna invest more time with Penny
because I love her, and I said, that's awesome.
Penny is perfect, that's what we call her, Perfect Penny.
They are perfect for each other.
We both agreed that there's not enough time in the day.
Remember the whole 24-hour rule?
Let's stick with it.
So what does he have to do?
He can do one of two things,
he's either got to cut out one of his necessities,
so work, he's gonna lower the amount
of hours that he's working every day,
or he's got to reduce the amount of time
that he spends with his bros on life enhancement things,
all those fun things so that he can add more hours
in to the 20%, the debt and savings category,
or investments as well because Penny will be an investment.
Time investment, I'm not saying money, ladies, okay?
I'm saying time.
If he wants to work in this relationship,
he's got to spend more time with her.
So we've come to the conclusion
that Fun Fred has turned into Frantic Fred,
and Frantic Fred is going to have to become Frugal Fred.
So let's take a look at what his life would look like
based on a 50/30/20 budgeting method
after what we've just talked about.
The deficits and the investments that he wants to increase.
Fred's got a dirty little secret, and what's that secret?
Debt.
Fred has accumulated some debt aka he is sleep-deprived.
He's also got another dirty little secret,
it's not necessarily a secret and it's definitely not dirty.
Her name is Penny, Penny the investment.
And we'll make her bold just
because she's so special like that.
I once heard a quote that went along the lines of,
"For everything we gain we lose something else."
So if he wants to gain in these two areas of his life,
aka reduce his debts and increase his investments,
then he's got to lose something else
somewhere else within his budget.
So here's his monthly budget.
100% means he's at his 24 hours a day,
or his $4,000 a month income,
and there's everything broken down,
50/30/20 as we saw before.
Now let's say that Fred wants
to increase his investment with Penny per month,
call it $200, oh snap, things just got weird.
We saw percentages go up and we saw things turn red.
I'm getting scared.
I'm starting to get real frantic just like Fred.
So if we wanna increase this percentage,
we've got to obviously remove it somewhere else.
Now it's up to you where you remove things out of your debt
but what I would recommend first is starting out
with the life enhancement things.
You can go ahead to the necessities
if you want to but it's up to you.
So he's gonna increase his investments by $200 with Penny.
He's probably gonna wanna remove some time
with his bros which I'm okay with, actually.
So let's say maybe he wants to go out here,
he wants to stay in to eat with Penny more,
well, okay less time with the bros, yes, thank you,
and more time with Penny
but we're still not where we need to be.
He doesn't wanna completely remove himself
from his bro time, the bro dinners,
so he's got to remove it somewhere else.
Let's say he wants to go to a few less sporting events
'cause Penny doesn't like sporting event,
she likes to paint, she likes to read.
She's very smart and cultured, and likes books,
and she likes intelligent conversations.
All right, I'm knocking on his little bros too much
and I apologize, so look at that.
We're back to 100%, this is awesome.
Now what if he wants to increase some of his debts?
Well, just like we did with Penny, the investment,
he would have to add things into this area
and then remove them from these two.
But as you can see, because he's got debts and savings
and investments that he wants to work on,
this 50/30/20 rule it's kinda getting a little out of whack,
it doesn't really look so much
like a 50/30/20 anymore, does it?
So now let's go over when it does and doesn't make sense
to do the 50/30/20 budgeting method.
If you've never done a budget before,
this method can kind of teach you how
to put some structure around your spending.
You can almost think of it like a budget on training wheels.
This method also works well if you are already out of debt
and you wanna retire the same age
as everybody else like the average person
because 20%, it's really not that much to be investing.
You should be investing more than that if you possibly can.
This is also a really good method
if you are lazy and you don't like to track your expenses
because you kinda just throw random things in these buckets.
You're not really paying attention to the details.
So when does the 50/30/20 budgeting method not make sense?
It doesn't make sense if you already have a few money
because 50/30/20 is probably
how much you already make a month,
not like us poor people out here.
This method also doesn't make sense
if you have a variable income,
so any kind of sales job or an entrepreneur
where you don't know how much you are going
to make for month to month.
If your main source of income is commission.
For that one, you wanna use another budgeting method,
which I will teach you about, so hit that subscribe button.
That was a cheap, plug.
Why would I do that right here?
This method also really, really doesn't make sense
if you're trying to get out of debt
because only putting 20% of your income towards your debts,
depending on the size of your debts, it's not enough.
It's probably not gonna make a very big dent in your debts.
So if you wanna stay in debt forever,
then absolutely, do this method.
And finally this method is for people
who are kind of minimalistic,
who don't need very much to enhance their lifestyle
because they're okay with living a little bit
below their means even if they have the money.
They don't need to be enhancing their life every month,
left and right like Fred was doing with his bros.
Thank you so much for taking some time out
of your busy day to check out this video.
I really hope you found some value in it.
Make sure you hit that like, comment, and subscribe button
because I love you long time, or I will love you long time.
All right, I'm talking to you next time, adios.