What is the 50/30/20 rule for managing money?
The 50/30/20 Rule for Managing Money
The 50/30/20 rule is a simple budgeting guideline that helps individuals manage their finances effectively by dividing after-tax income into three broad categories:
- 50% for Needs: This portion covers essential expenses that you must pay, such as rent or mortgage, utilities, groceries, health insurance, minimum loan payments, and transportation. These are non-negotiable living costs.
- 30% for Wants: This category includes non-essential expenses that enhance your lifestyle, such as dining out, entertainment, vacations, shopping, and hobbies. These are things you enjoy but can live without.
- 20% for Savings and Debt Repayment: The remaining 20% is allocated to financial goals such as building an emergency fund, contributing to retirement accounts, investing, or paying off extra debt beyond the minimum payments.
This rule provides a straightforward framework to prioritize spending, build savings, and maintain financial health.