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The 50/30/20 Budgeting Rule

Have you ever wondered at the end of a period how you spent your money? You are not alone. The advice I can give is for you to start budgeting. If you just want to start budgeting or you have started, there’s a way so many people have streamlined their spending in order to get their money on track.

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Have you ever wondered at the end of a period how you spent your money? You are not alone. The advice I can give is for you to start budgeting. If you just want to start budgeting or you have started, there’s a way so many people have streamlined their spending in order to get their money on track. 

The 50/20/30 rule is a guide on how to distribute your net income, it gives you a clear picture of where your priorities financially lie.

The whole idea behind this rule is that 50 percent of your income should be spent on essentials, 20 percent on savings and the remaining 30 percent on lifestyle.

Essentials – 50 percent of your income

The foundation of this rule is to set aside 50 percent of your net income (income after tax) for essential living. And while this looks like it is much, it covers the necessities of life – those you would be paying for no matter what your life circumstances. 

Most times, these expenses are almost the same for everyone and include housing, food, transportation costs, and utility bills.’

This category is basically for needs – those payments that would affect your life negatively if you were to forego them. every other thing else is wants. 

Savings – 20 percent of your income

Having budgeted 50 %, you are left with 50 %. The remaining 50 percent of your money is split in two ways.

Twenty percent goes to savings before you spend on wants. This is to help you build some reserves.

Here, you can decide whether you want to start a special fund, pay down debt, grow your business. You can use an online savings platform such as fundall.io to save that 20% of your income.

Lifestyle – 30 percent of your income

The last category, 30 percent, can be used for spending on wants.

While this might sound like the best part of the budget, it can be a little tricky.

The reason for this is that this category is not just for discretionary spending – that’s spending on luxuries – this category includes other expenses such as gym memberships, clothing or streaming service subscriptions.

 

However, you can be flexible between the categories depending on your circumstances.