Making a budget can feel overwhelming if you don’t know where to start. Luckily, there are some tried and true methods for budgeting that can make your life easier.
One popular budgeting strategy is the 50-30-20 rule, which has helped many people better manage their spending and maintain a healthier checking account balance. Let’s examine how it works and why it has been so popular for a long time.
What do the numbers mean?
Each number in the 50-30-20 rule represents a percentage of your spending. According to the rule, 50% of your budget should go toward your essential needs, 30% should go toward your monthly extras or “wants,” and 20% of your earnings should be put into savings.
If you divvy up your income accordingly, you should have enough budgeted to enjoy your life now and have more savings for later.
Your necessities (50%)
While everyone’s lifestyle is different, necessities are more or less universal. For example, housing is a necessity for everyone, so part of this 50% would go toward your rent or mortgage.
The same goes for transportation. Whether it’s for your monthly gas and car payment or for your transit pass, your commute is essential and should be included in 50% of your budget.
Other necessities include groceries, utilities, pet food, laundromat fees, or anything else that Is necessary for daily living. Prioritizing these costs within your budget ensures that your most important needs are always covered.
Your wants (30%)
One nice part of the 50-30-20 rule is that it accounts for you being a human being who wants things that might not technically be “necessary,” but that help you live a fulfilling life. You spend less on “wants” than on “necessities,” but there is still a nice space for them.
These are things that make you happy and bring you fulfillment, so it might be your monthly subscriptions, museum memberships, dining out, shopping, and other things of that nature. You should be able to enjoy the fruits of your labor!
Your savings (20%)
Saving money is important, even if it doesn’t seem like it right now. By saving 20%, you will feel more prepared over time for emergencies that require extra funds that might not be in your monthly budget or for the retirement that you have always sought after years of hard work.
Other goals worth saving for might include a down payment on a house, a family vacation, or paying off loans. It’s easy to overlook future expenses, but saving up now will pay off in the end.
Why it matters
Any budget can help you manage your finances, but the 50-30-20 rule provides clear guidelines that make planning even easier. By reviewing your bank statement, you can categorize your past spending into these three sections, helping you create a budget that’s easier to stick to.
If you don’t have the means to follow this budget exactly right now, that’s okay, too! The 50-30-20 rule can serve as a goal to reach. When you do have the means to spend and save accordingly, you will feel even better about where you are financially and your ability to reach your next level of financial goals.
Disclaimer: Article content is intended for information only. It may not reflect the publisher nor employees’ views. Consult a financial professional before making financial decisions. Publishers or platforms may be compensated for access to third party websites.
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