50/30/ 20 Rule of Budgeting
The 50/30/20 rule is for someone looking to plan out a reasonable budget that helps them achieve with their expenditure and financial goal.
The rule suggests that you should split your income in three buckets, Needs (50% of income), Wants (30%), Savings (20%) for better control over your money and financial goals
All in Three Steps
There are three steps to this rule:
- Spend up to 50% of your income on needs and obligations that you must pay viz. rent/mortgage, groceries, insurance, health care, gas and electricity, EMI.
- Spend upto 30% of the balance on wants, they are things that are not absolutely essential viz. eating out, movies, latest gadget, vacation, gym membership. Wants are not needs because they can be replaced or done away with.
- Finally, 20% of your income must go towards investments and savings for contingencies. For instance, you should have at least six months of emergency savings, save for critical financial goals related to the family and children.