Budgets have a bad rap. We know how useful they are, and still we resist them. Maybe it's because budgets are like over-protective parents who are always saying no; and we really want our budget to be more of a responsible friend, someone who'll join you on a road trip and keep you out of trouble at the same time.

You can have that style of budget by allocating a percentage of your income to fun money -- that's what you spend on vacations, dining out, hobbies, and gym memberships. How much should you spend on fun stuff? One budgeting framework has a very clear answer, and the number might surprise you. Read on to learn about the 50/20/30 budgeting system and how to apply it.

Young family having fun at the beach

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50/20/30 budgeting: start with your pay

The starting point of 50/20/30 budgeting is your take-home pay, with two adjustments. Pull out a recent paystub. You'll see your gross pay, along with several deductions. Circle your 401(k) contribution and your healthcare premium. Total these and add them back to your net pay.

Next, you'll convert this adjusted net pay to a monthly income figure. This is straightforward if you get paid twice a month. But it's more complicated if your paycheck drops every two weeks. In that case, you get two paychecks monthly for 10 months out of the year. In the other two months, you get three checks. The simplest approach, budget-wise, is to ignore the extra two checks and build a budget that assumes you always get two checks monthly.

Alternatively, you can multiply your biweekly check by 2 and one-sixth to convert it to the actual monthly amount. If you go this route, kick off your budget in a month when you get three checks. That way, you can stash the extra check in your cash savings account, and tap into it as needed.

Once you calculate your monthly income, you'll use it to define three spending buckets:

  • 50% of your income goes to your required expenses. These are non-negotiable expenses you can't easily cancel.
  • 20% of your income is earmarked for savings and debt repayment. This 20% pays for deposits to your retirement account, emergency fund, and credit card payments.
  • 30% of your income goes to things you want, but don't need. This is your fun budget. Use it for hobbies, recreational travel, dining out, gift buying, clothing purchases, and entertainment services like cable.

Say you take home $5,000 monthly. Your 50/20/30 budget would give you $2,500 for required expenses, $1,000 for savings and debt repayment, and $1,500 for fun money.

50% required expenses

The hard work of budgeting is sorting out your required expenses. Pull out the last three months of your bank statements. With a colored pen, circle every non-negotiable, required expense. These include rent or mortgage, utilities, insurance payments, car payments, and groceries. This won't be a black-and-white process, of course. Here are three issues you'll face:

  • Some expenses are required and optional. Your cellphone plan is an example. If you don't have a landline, you could argue that your mobile number is required. But you don't actually need the fancy phone, the full-featured plan, or the nationwide provider. In this scenario, shop around to understand what a bare bones cellphone plan actually costs. Use this amount as your "required" expense. Whatever you pay above that amount gets covered by your 30% fun budget.
  • Watch for expenses that don't occur monthly. Car insurance, property taxes, health insurance premiums, and haircuts don't occur in clean, once-monthly increments. Do your best to calculate a monthly amount for these.
  • Not all required expenses are predictable. Out-of-pocket healthcare expenses can be a wildcard. Estimate what you think a normal spending level would be for these. If you get hurt unexpectedly, you can cover the extra charges with your emergency fund.

Now, add up those required expenses and compare the total to 50% of your take-home pay as calculated above. Hopefully, the expense total is near that 50% threshold and you can make it work with a few tweaks. If you need bigger changes to get your budget in line, here are four strategies to consider:

  • Food spending is often a good place to look for savings. Try planning out your meals and making shopping lists ahead of time. Buy generic canned and packaged goods. Make bigger meals and save the extra portions for lunch. Or, make a cheap lunch dish, like pasta salad, on Sundays and portion it into five containers to get you through the week.
  • If you rent your home, moving to a smaller place makes the most dramatic difference in your required expenses. If you own, moving is a longer-term effort, but also has the potential to downsize your budget in a big way.
  • Replacing a newer car with an older model could free up hundreds by lowering your car payment and your insurance costs. Couples could consider sharing a car.
  • If you live in the city, incorporate public transportation in your commute to reduce gas expenses.

These are tough choices to make, for sure. But doing the hard work now puts you in control of your financial future.

20% savings and debt repayment

Under the 50/20/30 framework, 20% of your budget goes to savings and debt repayment. This will be easy if you have no debt. Allocate 5% to your emergency fund and 15% to your retirement plans. Or, send 5% to your emergency fund, 10% to your 401(k), and allocate the last 5% to another financial goal, such as a future home purchase.

It gets more complicate when you have a heavy debt repayment load. In that case, you might have to put 10% to debt repayment, 5% to your emergency fund, and 5% to your 401(k). Whatever you do, don't overlook retirement savings entirely as you pay off debt. In investing, it's really hard to make up for lost time. At least save enough in your 401(k) to maximize your company-match contributions.

30% fun budget

Now, let's talk about the fun stuff. If you cover required expenses, savings, and debt repayment with 70% of your income, you have 30% left for fun money. Before you get too excited, check in on your discretionary spending today -- it might be more than you realize. Go back to your bank statements and total the expenses you didn't already mark as "required."

Here's the beauty of your new budget: There aren't restrictions on your fun budget, as long as you don't exceed 30% of your income. If you want to forgo your fancy cellphone and cable subscription in exchange for more weekend road trips, go for it. You've already accounted for required expenses and future financial goals -- and that means those weekend road trips are guilt-free.