The 50/30/20 budget Rule is a budgeting technique that helps people manage their finances more sustainably and effectively. The rule breaks the net monthly Income into three segments: Needs (50%), wants (30%), and savings (20%). With the monthly Income divided into the three sets of buckets, individuals can effectively use their money without going beyond the set limit of every bucket.
2.0 How to Set a Budget Using The 50/30/20 Budget Rule
2.1 Needs- 50% of the Income
The first step of this rule is setting aside half of the salary to cater to some essential items. This category of money finances “must-have” items. These items include groceries, transport expenses, house payments like rent, healthcare, insurance, and utility bills like water and electricity. Items like HBO and Netflix subscriptions are not included in the “needs” bucket.
2.2 Wants- 30% of the Income
This bucket consists of money spent on items that are not essential. It includes expenses that enhance the lifestyle of a person. Television plans, cell phone plans, gym memberships, road trips, sporting tickets, and the latest electronic gadgets are some of the expenses that make this bucket. The maximum expenditure for this bucket should be 30%.
2.3 Savings-20% of the Income
In this budget rule, committing 20 percent of the Income toward savings and investments is the final step. The savings under this bucket may include retirement benefit accounts, saving plans, investing in a stock market, and emergency funds. In this bucket, the expenses should only be paid after taking care of the essentials and before paying for wants.
3.0 The Importance of Budgeting
The 50/30/20 Budget rule plays a critical role in income management. Having a budget helps people to have an understanding of how they spend their Income. Bad spending habits can be eliminated through budgeting methods like the 50/30/20 Budget rule. Expenses like eating out and shopping can be lowered by budgeting. Setting out funds for essentials and wants helps limit individuals from overspending on shopping luxuries.