50/15/5 Rule

The 50/15/5 rule divides your budget into three key areas: essential expenses take up 50% of your income, 15% is earmarked for retirement, and 5% goes into short-term savings. 

  • 50% – of your take-home pay goes to essential expenses
  • 15% – Retirement Savings
  • 5% – Short term Savings

50% - of your take-home pay goes to essential expenses

50% of income includes housing, food, health and child care, transportation, and debt payment.

  • Housing: Mortgage, rent, property tax, utilities
  • Good: Groceries, Restaurants,
  • Health and Child care: Paying health insurance premiums, daycare, tuition fees
  • Transportation: Car, bike loan, Parking, maintenance.
  • Debt Payment: Debt on credit cards, student loans, house loans,

15% - Retirement Savings

Setting aside money for the future is crucial. While savings like social security and provident funds are important for retirement, they might not suffice. Hence, allocating 15% of your income towards savings is essential for securing your financial future.

5% - Short term Savings

In an unpredictable future, unforeseen emergencies such as illness or job loss can arise. Being financially unprepared can worsen these situations. It’s wise to have an emergency fund that can sustain 3 to 6 months of essential expenses.

50/15/5 Rule