The 50-30-20 rule suggests allocating 50% of your income to needs, 30% to wants, and 20% to savings. The savings portion also encompasses funds needed to achieve your future goals.
50% – Needs
30% – Wants
20% – Savings
Needs – 50%
Needs encompass the bills you must pay and the essentials necessary for survival. These are the basic requirements for day-to-day living that ensure a standard quality of life. If needs exceed 50% of your income, cutting down or downsizing your lifestyle is important. Maintaining this balance can lead to a happier life.
Examples of needs are:
• Utility bills
• Rent or mortgage payments
• Insurance and Health care
• Groceries
• Minimum Debt Payment
Wants – 30%
Wants are the enjoyable indulgences we don’t hesitate to spend money on. They’re not necessities but rather things that bring us pleasure and entertainment. This could include subscribing to services like Netflix or Amazon Prime, dining out at restaurants, or planning vacations.
• Subscriptions
• Supplies for hobbies
• Restaurant meals
• Vacations
• Tickets to sporting events
• The latest electronic gadget
Saving – 20%
Allocating 20% of your budget toward your future is crucial. Saving and investing a portion of your net income is vital for ensuring financial security. Savings are a safety net for unforeseen events, such as job loss or emergencies. These savings can be directed towards retirement funds, investments, or establishing an emergency fund.
• Create an Emergency Fund
• Invest in the stock market or mutual fund
• Setting aside funds to buy physical property for long-term holding
• Making debt repayments beyond minimum payments
