The 50/30/20 Budgeting rule was made popular by US Senator Elizabeth Warren and Amelia Warren Tyagi.
It has become one of the most famous budgeting methods as it’s very easy to use.
It’s a great method to use for beginners as it helps you take on your personal finances and build more knowledge on having successful money management.
So, what exactly is the 50/30/20 rule? It suggests dividing your income in needs, savings and wants.
1. Spend 50% on your needs (Living expenses/essentials)
Half of your income should be delegated to going towards the main essential items such as food, housing, utilities and transportation. Spending less than 50% on these items means you can have more money to put into savings to spending areas.
Of course, there may be some exceptions as things go past basic need, such as loan repayments and credit card payments that you’re obligated to pay.
2. Spending 20% on savings
20% of your income should go to savings such as emergency funds, vacation funds, shopping funds etc. This can also include any investments or your super.
3. Spending 30% on flexible spending
This is for your wants, which you may need to separate from your needs. Just make sure to remember that, as this is for flexible spending, you only buy things if they are necessary.
Also, remember that there is a difference between your wants and needs.