What is the 50/20/30 Budget Rule?

by | Sep 21, 2021 | Blog | 0 comments

The 50/30/20 Budget Rule is to a rule to help you reach your financial goals. The basic rule is to divide up 50% of your budget on needs, 30% on wants, and putting away 20% for savings.  

50% Needs 

Needs are necessary bills that you must pay for your survival.  

They include; rent, food, water, groceries, healthcare, and other utilities  

These are ‘must have’ categories and do not include things such as Netflix subscription, Starbucks, or dining out 

If you are spending over 50% on your needs, then you must decrease your spending on your wants and that will affect your levels of savings as well 

30% Wants 

Wants are the things that you spend that are not essential to your survival 

They include; movies, dinning out, new handbag, tickets to sporting events, vacations, high speed internet, etc. 

Anything in the wants category is optional because you can work out at home instead of the gym, cook at home instead of going out, watch sports on TV instead of buying tickets to the game, etc.

Basically, wants are the little extras things you pay on to make life more enjoyable and entertaining 

20% Savings 

Finally, you should allocate 20% of your budget to emergency funds of savings account. 

You should at least have three months of emergency savings on hand in case you lose your job or an unforeseen event occurs 

The bottom line is that savings can be a difficult task to do, especially when there are many needs to be met. Life can be surprising at times and there are many unforeseen circumstances that you may not be aware of, by following the 50/30/20 rule you can plan for how you manage your income and find ways to reduce your expenses. In the end, life is to be enjoyed and proper planning will take you a long way for future financial success.