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How to Build a Bulletproof Budget: Worksheet + 50/30/20 Rule

Even after 10+ years of spreading the Rich Life gospel, our founder Ramit Sethi still runs into people who need budget help. They typically:

  • (A) Dont know how to build a budget.
  • (B) Dont know how much theyre spending each month.

For example, this tweet:

1Banners and Alerts and Ramit Sethi on Twitter If you don t keep a budget or a conscious spending plan why not No judgment I just want to hear your perspective


The answers he got back were fascinating:

2Ramit Sethi on Twitter I need budget help. If you don t keep a budget or a conscious spending plan why not No judgment I just want to hear your perspective 3Ramit Sethi on Twitter If you don t keep a budget or a conscious spending plan why not No judgment I just want to hear your perspective Ramit Sethi on Twitter If you don t keep a budget or a conscious spending plan why not No judgment I just want to hear your perspective


What do you notice about the responses?

Some common themes are fear, laziness, confusion, and even anger.

If that sounds familiar to you, thats okay! We want to be there to help.

Thats why were going to break it down to the basics today on how you can build a budget.

Why you need budget help

When people think budgeting, images of their parents studiously going over receipts, writing down expenses in a notebook, and screaming, HOW DID WE SPEND SO MUCH ON GAS LAST WEEK? come to mind.

That might have worked for them … but it sure doesnt work now.

How many times have you opened your bills, winced, then shrugged and said, I guess I spent that much?

How often do you feel guilty about buying something but then do it anyway?

This is unconscious spending (aka spreadsheet budgeting). The main issue with it is simple: Human willpower.

Who wants to track their spending? The few people who actually try it find that their budgets completely fail after two days because tracking every penny is overwhelming.

Alternative budget building tips

Instead, were going to gently create a new, simple way of spending.

We’re going to help you redirect it to the places you choose, like investing, saving, and even spending more on the things you love (but less on the things you dont).

This is going to be the foundation of your Conscious Spending Plan.

1. Know where your money is going 

You know your money matters are out of whack when it feels like youre starring in Macklemores Thrift Shop music video. When there is simply too much month for your paycheck, theres a good chance youre not aware of what your lifestyle actually costs. 

Its time to sit down and categorize your spending into four buckets. 

  • Fixed costs 
  • Investments 
  • Savings 
  • Guilt-free spending 

Now, youre going to see these four categories a lot throughout our personal finance articles and that is because all your expenses are contained in these categories. When you can pinpoint what belongs where youll quickly start understanding where the gaps in your financial plan are. 

For instance, if youre spending $500 per month on guilt-free spending and nothing on savings or investments, is it really guilt-free spending? Or if you have a fixed costs bill of $5,000, but your net income is $5,000, you might have a lifestyle you cant afford. 

Investments and savings are easy enough to tally up, but its worth going through your fixed costs and guilt-free spending categories to see whether youre overspending. 

Fixed costs examples 

To make sure the money goes where it needs to, you need to complete your fixed costs category first. You also need to allocate funds to this category first. 

If youre living paycheck to paycheck, this is also the area you want to comb through to make sure youre not paying for things you dont actually need or want.

You may find moving to a cheaper apartment or selling a car might allow you to breathe a little easier month-to-month, but the culling needs to make sense to you. What does it help to save $100 on rent every month only to spend $100 extra on traveling? 

There are four major components that you simply cant eliminate completely, or most people anyway. Theyre housing, utilities, food, and transport.

Other items in this category include internet costs, education, healthcare, debt repayments, insurances, and other expenses that pop up every month without fail. 

Guilt-free spending examples 

These are your subscription services, endless cups of Starbucks, expensive shoes, dining out, you get the picture? Now, just to be clear, just because we have this as a category, doesnt mean were saying you need to allocate money to it.

 If youre scraping the peanut butter jar so badly youre starting to get plastic shavings on your sandwich, you may want to clear up some fixed expenses first. 

Ready to take control of your finances (without tedious budgeting?) Get the first chapter of Ramit Sethi's NYT Bestselling Book below.

2. Build your budgeting systems 

Have you ever caught yourself saying, Ill get that on payday or Well go there on payday or my personal favorite, Your birthday is so inconvenient. Its smack bang in the middle of the month, who has money at that time?. Ill tell you who has money. People who know where their money goes. 

That may seem a little, eh, harsh, but its not meant to be. You can be that person who doesnt care whether someone has an event on the 1st or any other day for that matter.

The only difference payday makes, is that its the day a new salary payment lands in your account. If that money isnt carefully allocated into different categories, youll eat into money meant for savings and investments. 

So how do you get off this slippery slope? 

Allocate sub-accounts in your savings 

While were big on investments, we also know the value of saving for short term goals. Chucking everything into one account with no clear direction is like throwing a mixed laundry load into the washing machine on a hot cycle. You just never know when your whites are going to turn pink. 

Your savings account should have sub-categories that allow you to save up for your various needs. For instance: 

  • Emergency fund: Ideally, you’ll have at least 3-6 months worth of fixed cost expenses saved in an emergency fund. But if you’re really ambitious, go for one year. The pandemic taught us many things, one of which is that a solid emergency fund can ease potential hardship. 
  • Gifting and birthdays: If your budget is tight, its important that you budget birthdays and gifting ahead of time.  
  • Car service and maintenance: If you dont have a motor plan, you need to put money away for services, maintenance matters such as tires, and car-related things that might pop up. You dont want to dip into emergency savings for predictable expenses.
  • Big deposits: Vacations, a wedding, downpayment on property or car, this is the category where that goes.  

If youre with a bank worth their weight in, uhm gold, theyll allow you to open these sub-accounts at no extra charge and still offer to pay some interest on it.

It might take you half an hour to set this up, but guess what, when its done, you dont have to think about it again until you need to use it. Here are the savings accounts that we recommend – we are not affiliated with them in any way, but we use them and like them.

Automate your finances 

Were really, really big on this. Automating your personal finances is a game-changer. 

  • It takes the fear of the unknown out of your finances 
  • You don’t have to spend a ton of time on your finances (increasing the chances that you’ll actually stick to a system)
  • Youre able to identify holes or money traps in your budget 
  • It helps you build good financial habits 

You can automate your finances to such an extent that you simply have to give your bank accounts a glance over once in a while to make sure things are still running as they should. 

Every single thing that needs to be paid, can be automated. Lets have a look: 

  • Credit cards: Set up your credit card to have the balance auto-paid every month from your checking account. Settling the balance in full every month is an important step in money management and will do wonders for your budget. Not only will you save on interest, but it also boosts your credit score if you manage to keep your usage to no more than 30%. Automatic payments also ensure that the card is paid on time, every time. The importance of this extends beyond your relationship with the credit card, it can also influence future financial products such as buying a house. 
  • Investments: Instruct your company or investment firm to automatically withdraw a certain amount from your bank or every paycheck for your retirement accounts. Your goal is to automate your finances to such an extent that youve maxed out your allowable contributions to these accounts before moving on to other investment types such as index funds. 
  • Savings: Predetermining your savings and setting up an auto-transfer to your savings pockets will free up time and will make you less inclined to spend the money before you save it. There will always be something to save for, even if youve reached the limit to your emergency savings. Think home upgrades, new tech, a wardrobe revamp. 
  • Utilities: You can set up direct debit with most utility companies online. You know your utilities are up to date, you simply need to check the statement to make sure the amounts dont differ. Other than that, theres nothing else for you to do. 

3. Cut mercilessly on things you don’t love or need

Dont like watching TV? Cancel the Netflix subscription. What about the gym subscription? Is it possible for you to get the same results at home? 

Now move on to things that are a little more serious. Lets talk about your property, for instance. There is a truckload of other expenses that you need to consider when buying a property. Youre not just going to have a long-term mortgage. 

Before you even own the house, you need to have the downpayment, closing costs, and reserves on hand. While the downpayment and reserves are in your best interest, it may take time to build it up. 

Ongoing costs to consider include HOA costs, insurances, property taxes, maintenance, and utilities. Now, ask yourself whether youre still okay with it, or whether you might just be better off renting for a couple of years until youre 100% sure you want to settle in a specific location. 

Now, this might be an unpopular opinion, but owning a house is not the be-all and end-all our parents made it out to be. Its damn expensive and you need to be financially secure enough to take it on. Its not for everyone, especially those who consider themselves modern nomads. 

You may not want to cut out every day items that you love, like lattes and dinners out with friends, but if you can make cuts on major expenses like housing, that’s a huge win.

Budgeting is outdated. Build your conscious spending plan to take control of your finances and spend guilt-free on the things you love. Find out how in our FREE guide.

4. Increase spending on the stuff that matters

Dont let anyone tell you youre wasting money when youre spending it on the things that matter to you. 

When youve done your bit and allocated money to all the other categories and you have money leftover, its your prerogative to spend it how you want. So what if you like $1,000 shoes? If you can afford it and it matters to you, then it belongs in your guilt-free spending category. 

When youre doing this right and youve allocated what you need to in the other categories, imagine getting the figure up to 30% or even 40% of your take-home pay? 

5. Boost your income 

Money isnt everything, but if you like to live a life of experiences, being broke sucks. So how do you strike a balance between your top-heavy budget and some fun money?

If youve already gone through the culling discussed in step 3, dont reduce your savings or investments. Instead, look for ways to boost your income. Knowing how to make a budget is knowing how to make your money work. 

Your salary might have potential 

When was the last time you had a raise? If it was last year after a performance review and didnt even compete with inflation, its time to take out your calculator and start doing the math. A raise today could lead to more retirement savings, higher future salaries, a bigger dent in your debt, and more fun money. 

Its worth the discussion and if you follow our founder Ramit Sethi’s negotiation steps, you might just be looking at a dream salary. 

If you cant increase your salary at your current job, why not put your feelers out and use those very same steps on your interviewer? Who knows, instead of a tiny increase, you might be looking at a salary hop of a couple of thousand dollars per year. Its worth a look. 

Negotiate your financial and non-financial products 

You can reduce that fixed costs spending category in a matter of minutes simply by picking up the phone and reminding your service providers what a good customer you are.

Lets start with banks. There is a smorgasbord of products they offer and each one is either designed to keep their liquidity high (savings accounts) or earn them the big dollars (by offering credit with interest). 

You can either spend time negotiating half a percentage on your small savings account, or you can tackle the big-ticket items. For starters, if your mortgage is at a higher interest rate than it needs to be, check out the pros and cons of refinancing.

Just make sure that if you go down this route, that the lender doesnt hit you with a nasty processing fee. 

Checking accounts and credit cards are two other products that can do with a price check. If youre paying monthly or annual fees, its time to call them up and bring that figure down. 

But there are other areas you can save.

  • Internet service providers that onboard new customers at a lower rate. Get them to lower yours too in order to keep your business. 
  • Gym membership fees. Depending on the club and the length of time youve been with them, ask them to see if theres a way to cut down on the fees. 

Start a side hustle 

A side hustle can be a great way to boost your income, especially if you start out with as few overheads as possible, for instance, an online business. It might take you a couple of months to start making money, but those months are going to pass anyway so why not do something anyway? 

Now, figuring out which side hustle to start is easier than you think. If you know how to play an online game or order something online, you already have enough internet savvy to start your own thing. Yep. 

Side hustles that require very little startup cash, if any, include freelance writing, stock photography (you probably have a better camera on your phone than the photographer next door with his 90’s lenses), or a dropshipping store. 

Budgeting FAQs

How should a beginner budget? 

It all starts with the basics. Know exactly how much is coming in and how much is going out. You may have to write it down until it becomes second nature. Then, you follow the steps above which include financial automation and conscious spending. 

What are the 50/20/30 and 70/20/10 budget rules? 

The 50/20/30 rule is a budget guideline that states 50% of your after-tax income should go towards commitments and obligatory expenses. Then 20% on savings and debt repayments and the remaining 30% on everything else. 

The 70/20/10 states that 70% should go towards expenses, 20% on savings, and 10% on giving. 

While these are handy when youre still trying to figure things out, its important that you find a ratio that works for you. The goal is simple, decrease your debt, increase your savings and investments, and allow yourself some guilt-free spending. 

What is the envelope system? 

The idea is that you have an envelope for each payment category. So you’d have one for your housing, one for utilities, another for food, and so on. Great envelope systems include investments and savings too. 

However, technology has shown us that everythings easier when you automate it. Apps such as Fudget and Monefy are great for those who wish to use the envelope system. This allows you to stay on top of your obligations, have a proactive approach to budgeting, and not overspend. 


A budget is not a spreadsheet. Its a proactive approach to your finances and allows you the financial freedom to meet your financial obligations and commitments.

It also allows your money to work for you and buy you great life experiences and the rich life you desire, all while building up the financial foundation for future you.

Learn to take control of your finances and spend your money GUILT-FREE with our free Ultimate Guide To Personal Finance below:


  • Jen Kessler

    I recently started using sub savings account and it has literally changed the way I spend money. It seems so simple and yet I had never thought of doing it before but I love see the $s go up next to a name like "House" haha! Also another thing that has helped streamline budgeting for me is my banks free money manager so I can categorize and see month over month what I'm spending in each category. That has helped too!

  • Mohamed Saleem

    Budget Plan is OK. But That budget will come back safely.

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