Understanding the 50/30/20 Rule

Understanding budgeting with the 50-30-20 rule
Budgeting has many advantages, such as having more insight and control of your income, the ability to save, and empowering yourself to feel confident in your financial decisions. The most accessible budgeting rule would be the 50/30/20 rule, which is easy to understand and follow.

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The most accessible budgeting rule would be the 50/30/20 rule, which is easy to understand and follow. Before implementing this rule, you should understand your income and financial goals. 

What does it mean to follow the 50/30/20 rule?

The 50/30/20 rule is one of the simpler budgeting methods. It is easy to understand for most people because it is just three different rules. These rules place 50% of your income towards needs, 30% towards wants, and 20% to savings. Before you start embarking on your budgeting journey and implementing the budgeting rule, you should look at multiple budgeting avenues to see if this one is the right fit for your financial situation.

Allocating 50% to Necessities

What does it mean to put 50% toward needs? Take half of your monthly income and use it towards your monthly bills. When referring to needs, we mean utilities, rent, groceries, gas, and debt payments. Some people consider their extraocular activities as wants, and if you would like, you can do that, but you may need to adjust the percentages to fit your needs. We don’t recommend this, though.

Allocating 30% to Wants

This is where you place 30% of your budget on the activities you like. This could be dining out or splurging on designer clothes, event tickets, and subscriptions. Treating yourself is a rewarding motivation that helps your personal satisfaction without sacrificing essential needs!

Allocating 20% to Savings

Designate 20% of your income to your savings for various purposes, such as vacations or a desired vehicle: emergency funds, 401k, and other long-term financial goals. Savings can later be used for wants or needs if needed.

Tailoring the Rule to Your Finances

Recognizing everyone’s financial goals and situations is unique, and the 50/30/20 rule may require adjustments. Factors like living costs in an expensive area may alter the percentages and how you allocate your money. But embracing this rule, even if you must adjust the percentages, will be a great starting point in your financial journey. Start investing in yourself and incorporate the 50/30/20 rule into your financial planning, but remember to be adaptable and forgiving to yourself while you perfect it to adjust to your lifestyle.

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