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Budgeting: The 50-30-20 Rule

I am a college graduate who uses budgeting tips to save money while planning for my future career.

What Is the 50-30-20 Rule?

The 50-30-20 rule is a form of budgeting that allows for the allocation of 50% of your income to necessities, 30% of your income to wants, and 20% of your income to your savings. This form of budgeting is thought to optimize spending, allowing the user to regularly save money while still making sure that they award themselves without going over their budget.

A 50-30-20 budget example written by me

A 50-30-20 budget example written by me

How to Apply the 50-30-20 Budget Rule

  1. Calculate your average monthly income.
  2. Use this income to generate the amounts of 50%, 30%, and 20% of your income for necessities, wants, and needs.
  3. Once you add these amounts, go through and subtract all of your wants, needs, and your average savings contributions.
  4. Once done, you can lessen or increase how much you spend for each category to create your ideal budget that does not put you in debt and that allows for all expenditures to be accounted for.
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Breaking Down the 50-30-20 Budget Rule

  1. Make a list of all of your expenses and calculate your monthly average.
  2. Once you calculate the monthly averages, be very careful in separating them into the wants and needs categories. It is easy to mistake a want for a need if you are not careful to consider whether or not the expense is a necessary one. Typically utilities, rent, gas, groceries, and medications would fall into the necessities category. Things like hair appointments, amusement parks, shopping excursions, and coffee runs would be considered wants.
  3. After separating your expenses into the different categories, subtract all necessities from 50% of your income, all wants from 30% of your income, and make sure to calculate 20% of your income toward savings.
  4. After subtracting all expenditures, any leftover money should either be put into savings or contributed to another category that may be a bit shy of the 50-30-20 budget. Remember that these percentages serve as a template and can be skewed in order to fit your personal spending habits.
  5. Make sure to write everything out so that you can be aware of ALL monthly expenditures. This will aid in calculating the best percentages for each category.

A Budget Allocation Example

Being able to separate your necessities, wants, and savings will allow you to understand your spending habits and to make adjustments to fit your money goals for the future.

Necessities (50%)Wants (30%)Savings (20%)

Groceries: $400

Movie tickets: $40

Savings: $500

Utilities: $ 394

Shopping: $200

L/O 50%: $70

Rent: $800

Eating out: $150

L/O 30% $20

Total: $1594 L/O: $70

Total: $ 390 L/O: $20

Total: $590

I wish you the best of luck in your journey to financial wellness!

I wish you the best of luck in your journey to financial wellness!

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Sa'Mya Clark

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