For those who are unaware, the 50/30/20 budget is a concept that allows a person to budget and save their money smartly. It is a well-known method for allocating your money to different categories to achieve well-balanced finances. This plan suggests dividing your after-tax income into 3 categories – needs, wants, and savings.
50% of your after-tax income goes to your needs. Needs are the essential expenses we need for our day-to-day living. It includes:
- Rent or mortgage
- Food and groceries
- Transportation costs
- Debt payments
30% of your after-tax income goes to your wants. Wants are your discretionary expenses that enhances your lifestyle or brings joy to your life. It includes:
- Eating out
- Personal care
20% of your after-tax income goes to your savings. Savings goes towards your long-term goals such as:
- Emergency funds
The 50/30/20 budget is just a general guideline. You can adjust it according to your circumstance. It is a useful budgeting strategy to help you keep track of your financial situation and ensure your expenses stay within proper limits. Sticking to this budget will help you achieve financial stability without sacrificing your personal fun and enjoyment.
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