The 50/20/30 budget rule is a great way to make sure that your money is being allocated in the best way possible. It can be a little bit tricky to follow at first, but once you get the hang of it, it’s a really easy way to stay on track financially. In this blog post, we will discuss what the 50/20/30 budget rule is and how you can make it work for you!
What is this rule really about?
In a nutshell, this rule is really simple. You divide your income into three categories, and each category has a different percentage that you should be spending.
The first category is your essential expenses, or your NEED- which should take up 50% of your income. This includes things like rent, food, transportation, utilities, etc.
The second category is your flexible expenses, or your WANT- which should take up 30% of your income. This includes things like dining out, entertainment, vacations, etc.
The last category is your financial goals, which should take up 20% of your income. This includes things like saving for retirement, investing, paying off debt, etc.
Is it a fixed rule?
The rule is a guideline that is intended to help individuals manage their money and save for emergencies and retirement. It is not a hard and fast rule, but it is a good starting point for those who are looking to get their finances in order.
Even though the rule dictates you should allocate 20% for your saving or financial goals, that should not be the reason that you should follow this 20% guideline.
If you want to be more aggressive and save more to reach financial independence, you can adjust this percentage and make the money work for you when you sleep (via investing).
How to make it work for you?
Like anything in life, rules are here to guide us, not to constrain us.
Depending on your take-home salary and where you are at the stage of life, you can adjust accordingly.
First, start off with your priorities. What is the most important thing for you right now?
What are your biggest goals right now?
Do you want to invest in your career, yourself and experience as much as you can as a youngster?
Do you have to save for a downpayment for your first house?
Do you decide to just rent for a long while, while investing aggressively in the coming 10-12 years to retire early and travel the world?
You have to decide your numbers based on your personal financial situation and your salary/income as well as your goals.
One thing to keep in mind is that you don’t want to sacrifice the present too much for a remote future. What I mean by that is don’t become way too frugal and live too below your means just to save for your retirement.
What’s the point of saving for the future if you cannot even live content in the present first and feel miserable.
A lot of people take it to the extreme level.
I think striking a balance is key. Allowing yourself to enjoy the present while planning well for the future. Too much of something is not sustainable.
Final thoughts
And that’s really all there is to it! The 50/20/30 budget rule is a great way to make sure your money is being allocated in the best way possible. It can be a little tricky to follow at first, but once you get the hang of it, it’s a really easy way to stay on track financially.
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Minh
Minh is a personal finance enthusiast, a CFA charter holder, and a Strategy consultant by profession. She loves to talk about everything personal finance-related. She wants people who read her blog posts to feel empowered and inspired in their journey to master their finances and towards financial independence, just like herself.
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