How to implement 50-30-20 budget rule

 

Today we are going to talk about budgeting because, without a systematic budget, your financial plan can go awry. To understand how to create a good budget, you should know about the 50/30/20 rule. Let’s discuss this rule in detail.

What is the 50/30/20 rule?

If you are someone who finds it difficult to control spending habits and save enough for investments, then you should know about the 50/30/20 rule. By following this rule, you can significantly improve your personal finances.

Let’s understand this rule in simple terms. According to this rule, a person should allocate 50% of their income for basic necessities, 30% for wants or desires, and the remaining 20% for savings and investments.

This rule helps in setting a cap on each of these categories and ensures that you are capable of fulfilling your needs without compromising on savings and investments for the future. It also brings discipline to your financial management because you will already know how much to spend and how much to save.

Now, let’s delve into each component:

50% of income for basic necessities:

It’s logical to spend half of your income on fulfilling your basic needs. This includes groceries, utilities, rent, food and fuel, insurance premiums, loan repayments, and other essential expenses.

30% of income for wants and desires:

Approximately one-third of your income should be allocated to fulfil your wants and desires. These could vary for everyone – it could mean dining out twice a month or going to the movies for some, while for others, it could mean going on vacations every six months or shopping sprees. Thus, this rule also includes expenses related to essential leisure activities.

20% of income for savings and investments:

From a future perspective, this is the most crucial component of this budget rule. According to this, 20% of monthly income should be allocated towards savings and investments.

Following this component of the budget allows you to gradually build significant wealth over time as you are regularly investing in various financial products.

Benefits of the 50/30/20 rule

The 50/30/20 rule is an easy path to your financial success:

Easy: Understanding and implementing the 50/30/20 rule is very easy, even if you don’t have much understanding of finances.

Balanced money management: By creating a budget, you can better manage your expenses, earnings, and investments, ensuring that all your needs, entertainment, and savings are met. This rule brings balance to everyone.

Prioritisation of essential expenses: With its help, you can prioritise essential expenses such as rent, electricity, food, etc., meaning arranging for these first and then focusing on other tasks.

Encourages saving: Nowadays, people are losing the habit of saving, and you can fulfil emergencies, retirement, or your dreams with 20% savings.

Financial security: By saving 20% every month, you can achieve your goals and provide security to your family because even small amounts bring big changes in the future!

These are some simple rules, but they benefit for a lifetime! Let’s adopt this rule today and move towards a prosperous future!. Read More about 50-30-20 budget rule