50/30/20 Rule

Budgeting is a very personalized part of someone’s finances. Budgeting is also something that many people struggle to do because it can cause stress and anxiety. One budgeting method that has taken the stress out of budgeting is the 50/30/20 Rule. The 50/30/20 Rule is a simple way to manage your finances and make sure you are reaching your financial goals.

The 50/30/20 Rule is a set percentage of your after-tax income. 50% of your income goes towards your needs in life. Your needs in life are anything that must be paid every month, such as housing, transportation, food, insurance, and utilities. These things are things you need to survive in life. If your spending on needs is over 50% of your income, then you need to reduce certain things. Your rent may be too high or the car you drive is too expensive.

30% of your income goes towards wants in life. Your wants in life are the things that are hobbies, passions, or fun activities such as subscriptions, dining out, clothes, technology, furniture, and so on. These are things that you do not need to survive, but that bring you comfort and enjoyment in life. If your spending in wants is over 30% of your income, then you need to reduce your spending in this area. You may be dining out too much or you may have too many streaming subscriptions.

20% of your income goes towards debt repayment or savings. Savings are often overlooked when people budget because it is easy to put all your income into wants and needs. Paying off debt and saving money are important to building financial security. The 50/30/20 Rule prioritizes savings.

What makes this budget work for everyone is that your spending is calculated in percentages. Everyone can do this budget because it is personalized based on your income. If you make less money, you will have less to spend on each area, but it should still work for you.