What is the 50/20/30 Rule?
The 50/20/30 Rule is a simple way to break your expenses into the following categories:
50% Essential Needs
These are necessities for maintaining your life: shelter, food, water, etc. Use 50% of your income for basic costs like rent/mortgage, utilities, food and transport.
20% Financial Responsibilities
Dedicate 20% of your income to financial goals like savings, debt payments, student loans and retirement contributions. These expenses should be paid only after paying for Essential Needs, but before you do any other spending.
30% Lifestyle Spending
The final 10% of your score is based on the type of credit you have; installment vs. revolving debt. Installment debts or non-revolving loans are debts such as car payments, mortgages, or student loans. Revolving debts include credit cards and lines of credit.
The best part of 50/20/30 Rule is how easy it can be implemented into your life and be easily adjusted based on life changes. Once you start working on creating a budget and find what works good for you, it’s hard to reverse course. So while in the beginning stages, it might seem like a lot of work, stick with it. You will be amazed at how much you can save when you pay attention to where your money goes.
Need more help creating a budget? Download our Budget Worksheet below.