50/30/20 budget

Master Your Finances: A Beginner’s Guide to the 50/30/20 Budget Rule

A budget can give you a sense of financial control and make it easier for you to save money for your objectives. Finding a system that works for you can help you feel like you have a better handle on your finances.

Have you ever heard of the 50/30/20 budget rule? The rule is to split your income into three categories of spending: 50% on needs, 30% on wants, and 20% on savings. This simple and logical approach to building wealth can assist you in creating a realistic budget that you can follow over time to achieve your financial objectives.

Prioritizing your necessities: 50% of your income should go towards housing, food, transportation, basic utilities and insurance

50% of your income: Needs

The expenses you can’t avoid are necessities. This part of your budget should cover necessary expenses like:

  • Housing
  • Food
  • Transportation
  • Basic utilities
  • Insurance

What constitutes a “need” may vary from person to person. If you find that your needs total more than half of your gross income, you might be able to make some adjustments to reduce those costs, such as switching grocery stores.

Indulge in your desires: Allocate 30% of your income towards hobbies, vacations, dining out, and other personal luxuries

30% of your income: Wants

Wants are things you want but don’t actually need to survive. Some may consider this category to include luxuries, like items that may improve your life but are not a requirement to survive. Items that fall within this category include:

  • Hobbies
  • Vacations
  • Dining out
  • Digital and streaming services

This category is highly personalizable, meaning that it should consist of things that make you happy and fulfill your life.

Secure your future: Set aside 20% of your income for savings and investments such as retirement funds, high-yield savings accounts, bonds, and debt repayments

20% of your income: Savings

Finally, set aside 20% of your monthly post-tax income for savings.

The overarching theme of the 20% “savings” category is that you’re moving money away from your checking account and into an account where it can grow and help you improve your future. 

Savings can include:

  • Cryptocurrency investments
  • A retirement fund
  • High-yield savings accounts
  • Bonds
  • Debt repayments

An example of the 50/30/20 budget

Let’s see the 50/30/20 budget in action.. Assume your yearly salary is $60,000. You should allocate the following amounts to the major three categories based on the 50/30/20 rule.


Here’s an example of how this could work in a real life situation:


The takeaway:

The best budgeting style for you is determined by a number of factors; there is no one-size-fits-all approach to budgeting and saving money. That being said, the 50/30/20 rule is a simple yet effective way to get started on your budgeting journey.

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