Updated: Mar 26, 2020
Breaking down your budget and managing it comes down to this very popular rule.
Budgeting is the most important step towards achieving your financial goals and becoming financially independent. It gives you control over your finances and makes you aware of what is going on with your money by organizing your spending and savings. The 50/30/20 rule begins with basically dividing your income, spending it on your needs, wants and allocating some towards savings. If tax is applied on your income in the country where you earn, you need to calculate on the basis of your after-tax income. When creating a budget, 50% of your income can be set aside towards your needs. Needs are those that you are absolutely required to pay and those that are necessary for your survival. This includes groceries, housing, utilities, insurances and loan repayments. Identify your needs and distinguish them from your wants.
30% of your income can be allocated towards your wants. This includes the things that you spend money on that are not essential such as dining out, movies, a latest gadget, luxury shoes or clothing etc. It also includes all those upgrade decisions you make such as upgrading to the business class in an airplane, opting for a VIP seat in the cinema, choosing a fancy car instead of an economical one etc. You could be spending much more on wants than you think. The most common area where many fail is when they are unable to separate their wants from their needs.
Lastly, 20% of your income can be allocated towards savings and investments. This includes having an emergency fund, retirement savings and investing in the stock market. This budgeting rule can vary depending on the level of income, costs of housing and loan repayments etc. Someone with a low income living in a high-rent locality may not be able to allocate only 50% of his income towards his needs. However, the rule can be a good starting point for your spending and to create a budget that is more suitable for you. If you need help in setting up a budget for yourself or your family, send us an email to firstname.lastname@example.org and we would be more than happy to help you out. Related - Implement the 30 day rule to control your Spending Habits! How to create an emergency fund! 7 types of budgeting for your personal finances!
The Ultimate Guide To Getting Your Finances Back On Track is a book that aims to help the user in being smarter about their finances. This guide contains seven sections - Financial Goals, Expenses, Savings, Income, Loans & Debts, Budgeting, and Investments. Each of these sections explains everything you need to know about Personal Finance in simple terms. By the end of this book, you will have learned the fundamental principles that will help you in maximizing your income, decreasing your expenses and increasing your savings that will overall kickstart your process of truly building wealth.
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