What You Need to Know About the 50-30-20 Budgeting Rule
If you have been scouring the internet for money-saving tips, you may have heard of the 50-30-20 rule by now. This is a rule specifically created to help people budget. As we all know, budgeting is not the easiest thing. Saving money can be challenging, especially with all the temptation that looms around us to go ahead and spend it.
Let us delve more deeply into what this rule is and why it works. After all, the more you understand it, the more easily you might adhere to it.
What is the 50-30-20 rule?
Simply put, the 50-30-20 rule is a budgeting rule where the numbers dictate the percentage of your earnings dedicated to various categories. 50% of your earnings should go to your needs, 30% for your wants, and 20% for savings. As you can see, this is a simple and straightforward rule, and absolutely anyone can follow this rule to start budgeting effectively.
How does it work exactly?
To get deeper into how the 50-30-20 rule works, let us look at each category.
First, the 50 category includes all your basic needs. These things include food, mortgage payments, utilities, and other types of payments you need to cover each month to live. Do not include entertainment in this category, as these will be included in your wants category. In other words, this should be allocated to things you cannot live without.
Second, the 30 category includes the things that you want. They are "nice to have," such as fine dining, game purchases, new devices, and the likes. This is the category in which you can also try your best not to spend. You can add it to your wants category next month to buy more expensive items or save it.
The third and last category is the 20 category, which is the money you will save. It is arguably the most important category of all because it affects your future. This can include savings for your emergency fund, savings account, and a few other financial goals. Generally, you do not want to spend 20% of your income in a way that does not give any return. Investments do give a return, despite the risk, and that is where your 20% savings can go into.
The 50-30-20 rule can work incredibly well for many people simply because it is so easy to follow. Your money is already portioned under the rule, and all you need to do is keep track of your spending to ensure you do not go over these numbers. Of course, you can slightly tweak these rules, such as increasing the 20 to a 25 and adjusting the other categories depending on your income level.
That being said, this does not mean that this rule will be easy for you to follow, especially if you've never budgeted before. As such, doing some research on your side and planning carefully how you will save is an effective way to get started. Any money saved is a good start, and you can improve your budgeting efforts to start utilizing this rule and perhaps many other tactics that you may hear about!
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