The 50/30/20 rule helps you manage your money by dividing it into three parts: 50% for things you need, 30% for things you want, and 20% for savings and paying off debt. First, figure out your monthly income after taxes, then split it using the 50/30/20 plan.
What’s the 50/30/20 rule?
The 50/30/20 rule is an easy way to budget your money every month. You split your money into three big parts after you figure out how much you bring home after taxes.
Figuring out your money
To use the 50/30/20 rule, you need to know your monthly income after taxes are taken out. This is the money you actually get to use. Remember, things like health insurance or retirement savings that get taken out of your paycheck aren’t included in this. Only take out taxes to find your take-home pay.
50% for what you need
This half of your money goes to important stuff you can’t skip paying for. This includes:
- Your home.
- Food.
- Getting around (like bus fare or gas for your car).
- Basic bills (like water and electricity).
- Insurance.
- The smallest amount you have to pay on loans. If you pay more, that extra goes into your savings.
30% for what you want
This part is for the fun things that aren’t essential but make life enjoyable. This can be different for everyone but often includes:
- Subscriptions, like for movies or music.
- Traveling for vacations.
- Going to movies or other entertainment.
- Eating out at restaurants.
20% for savings and debt
The last part of your money goes towards getting ready for the future. You use this to save money and to pay off any debts you have. What you do with this money can change based on what you need, but here are some ideas:
- Building an emergency fund for unexpected expenses.
- Saving for the future, like retirement, with a 401(k) or an IRA.
- Paying off debts, especially those with high interest like credit cards.
