What is the 50/30/20 rule?
The 50/30/20 rule is a popular budgeting method that splits your monthly after-tax income between three main categories. Here’s how it breaks down:
50% of your income should go toward things you need
Needs are those bills that you absolutely must pay and are the things necessary for survival. These include Housing., Food, Gas and electricity, Transportation., Basic utilities., Insurance.
30% of your income should go toward things you want
Wants are the extras that aren’t essential to living and working. They’re often for fun e.g. some monthly subscriptions, Travel, Entertainment., Meals out, new handbag, vacations, electronic gadget etc..
20% of your income should go toward your financial Goals
This category covers two main areas:
- All savings & investment
- Debt payments
There isn’t a one-size-fits-all approach to money management, but the 50-30-20 plan can be a good place to start if you’re new to budgeting and are wondering how to divide up your income.
If you turn to the 50/20/30 rule as a method of budgeting, you can further simplify it by keeping track of your spending on a budgeting app/ spreadsheets and automating your savings.
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