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What Is the 50/30/20 Rule?

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14 Jan 2022, 23:24 GMT+10

When it comes to being on a budget, you may have more questions than answers. So, you made a good check and have a stable job, but what are you supposed to do with your money? Not all budgets are created equal, but there is a standard rule when it comes to budgets. In the money world, the rule is called the 50/30/20 rule. So what is this rule, and how can it be applied to your finances?

We turned to the experts at WealthRocket to find out. Wealth Rocket is a top-quality financial resource site designed to help everyone make the most of their finances, bank account, investments, and more. The good news is that all you need is your finances and this budget rule to get in good financial standing without sacrificing the things you love.

All About the 50/30/20 Rule

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So, what is this rule? As you can see, it is a budget broken into three different parts. The first part is the 50. This 50 is a percent of your paycheck that is put aside for expenses. These expenses are your necessities, such as your rent, utilities, groceries, and more. These are the most essential expenses because they are what you absolutely need to survive. With this rule, out of that 50 percent, only 30 percent needs to be your rent or mortgage to stay on track.

Next is the 30, which is just 30 percent of your income. This 30 percent is for your wants. Now, this can be anything from your daily coffee to your Netflix expenses. Having these things budgeted can keep you on track to reach your financial goals.

Finally, you have the 20 percent part of the rule. This 20 percent is the most important because this is for savings and debt. A good rule of thumb for this 20 percent is to start with savings and get at least $1,000 in your savings before spending the 20 percent on debt.

How the 50/30/20 Rule Works

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While this budget may not be for everyone, it is one of the most common budgeting strategies. First, you must start by looking at your post-tax income and gathering a list of all your basic necessities. Typically, these necessities are your rent or mortgage, water, electricity, and car note. This is what makes up the 50 percent. It is crucial to list everything so you can keep it within budget.

The next part is to make a list of all your wants. Even down to the daily coffee run, be sure you put it in the budget so you can account for it. Finally, make a list of long-term savings goals. These long-term savings goals can be anything from paying off all your student loan debt to having six months' worth of expenses saved for emergencies. Emergency funds are a great tool to have with this rule to ensure that the rule could continue without interruption if an emergency were to arrive.

Sticking to a budget can be a challenging task, but be sure to hold yourself accountable. When you have a good budget, financial freedom will come and open doors that can help you progress. Make a vision board of financial goals if it helps to keep you on track.

How Budgeting Is Important

Whether you go with the 50/30/20 rule or another budget method, it is vital to have a budget to keep yourself on track. Having a stable paycheck is fantastic, but it could hurt you if you don't put it toward things the right way. Of course, you could go on a spending spree, but then what happens when your car note comes due? Having everything budgeted, including amounts owed and dates, will keep you organized so that your budget can work for you.

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