Are you struggling to keep your finances in check? If so, you’re not alone. Managing money can be a challenge, especially if you’re not sure where to start. But there is a simple and effective rule that can help you take control of your finances: the 50/30/20 rule.
What is the 50/30/20 rule?
The 50/30/20 rule is a budgeting strategy that suggests dividing your income into three categories: 50% to needs, 30% to wants, 20% to savings and debt repayment.
Breaking down the 50/30/20 rule, a suggested breakdown for your monthly income is:
- 50% allocated to needs such as housing, utilities, groceries, and transportation.
- 30% allocated to wants such as entertainment, dining out, and shopping.
- 20% allocated to your savings and debt repayment.
Tips to get started
Here are some tips to help get you started applying the 50/30/20 rule to your budgeting:
- Track your spending: Use a budgeting app or spreadsheet to track your spending and identify areas where you can cut back.
- Prioritize your needs: Make sure you cover your essential expenses, such as rent or mortgage payments before allocating money to your wants.
- Automate your savings: Set up automatic transfers from your checking account to your savings or investment account to make sure you save consistently.
- Pay down debt: Use the 20% category to pay down high-interest deb, such as credit card balances.
The 50/30/20 rule calculator
We have a helpful tool to simplify your budgeting and prioritization of expenses. Our 50/30/20 rule calculator is free to use – simply enter your monthly income and the calculator will help you allocate your expenses.