What is the 50/30/20 rule?
By: Aimee Malgapo
If you are beginning to manage your finances, it is important to create a budget for yourself. A budget is an estimate of income and expenses for a specific frame of time. A popular guideline to use for people who are beginning to budget is the 50/30/20 rule.
The 50/30/20 rule outlines where your money should be allocated so that you can live within your means and build your savings. Be sure to use your net income, or after tax income, when outlining your budget for the 50/30/20 rule so that you can create an accurate budget for yourself.
The 50 in the 50/30/20 rule is meant to allocate your needs. Needs are expenses that must be paid for every month. This includes your housing, car payments, phone bill, groceries, minimum debt payments, as well as gas and utilities.
The 30 in the 50/30/20 rule is supposed to be spent on your wants. Entertainment, travel, shopping, and self care are factored into wants as they are expenses that you don’t need every month, but include items you enjoy.
The last portion of the 50/30/20 rule is for paying down debt and building savings. Find out how much money you can contribute every month for any debt such as credit card debt or student loans you’ve accumulated. Confirm which debts have the highest interest rate and be sure to pay those off first. Money for savings can go to IRAs (individual retirement account), emergency funds or 401ks.
The 50/30/20 rule is a general guideline to help people create a budget. Every person is unique and may require a different guideline. To learn more about budgeting and personal finance, take the Money 101 workshop with 50/50 Leadership.
Resources:
50-30-20 Rule for Budgeting | Britannica Money
(22) Budget Money Rules: 70/20/10 vs 50/30/20 - Which is BEST? - YouTube