Budgeting is easy. It is easy with the simple yet effective framework in budgeting – the 50/30/20 rule. It is a budgeting method that allows you to easily manage your money without overthinking every cent.
50% of your income goes to your needs. These are the things necessary for you to live and work. These are your rent, mortgage, groceries, utilities, insurance, debt payments, and the like.
30% of your income goes to your wants. Wants are the non-essentials that you can actually live without, but make your life more enjoyable. These are traveling, dining out, entertainment, gaming, movies, and subscriptions.
20% of your income should go to savings. This is either your emergency fund, retirement fund, investments, or any form of savings that will help secure your future.
What makes this budgeting rule astounding is its simplicity. There’s no need to analyze every expense or create a proper structure to make budgeting work. Furthermore, it is flexible. You can shift percentages based on your situation and goals. It works perfectly if you need to aggressively pay off debt or if you live in a high-cost neighborhood or city.
Start by calculating your after-tax income. Categorize your spending according to the three categories – needs, wants, and savings. Adjust your budget as needed. This rule doesn’t require perfection, only consistency.
With the help of 50/30/20 rule, you can easily balance your finances. It allows you to cover your financial responsibilities while enjoying life and preparing for your future.
How does it work?
50% of your income goes to your needs. These are the things necessary for you to live and work. These are your rent, mortgage, groceries, utilities, insurance, debt payments, and the like.
30% of your income goes to your wants. Wants are the non-essentials that you can actually live without, but make your life more enjoyable. These are traveling, dining out, entertainment, gaming, movies, and subscriptions.
20% of your income should go to savings. This is either your emergency fund, retirement fund, investments, or any form of savings that will help secure your future.
What makes this budgeting rule astounding is its simplicity. There’s no need to analyze every expense or create a proper structure to make budgeting work. Furthermore, it is flexible. You can shift percentages based on your situation and goals. It works perfectly if you need to aggressively pay off debt or if you live in a high-cost neighborhood or city.
Start by calculating your after-tax income. Categorize your spending according to the three categories – needs, wants, and savings. Adjust your budget as needed. This rule doesn’t require perfection, only consistency.
With the help of 50/30/20 rule, you can easily balance your finances. It allows you to cover your financial responsibilities while enjoying life and preparing for your future.