WHAT IS THE 50/30/20 BUDGET RULE? FIND OUT IS IT FOR YOU?

You might have heard of the 50/30/20 rule before which is also known as the “budget rule”. This budget rule has been around for quite a bit now and it was made popular by Senator Elizabeth Warren. This basic budget rule is meant to help you divide up your after-tax income (take-home pay) and put 50% towards needs- such as housing and living essentials, 30% on wants, and 20% on savings. 

But, just like any rule, the 50/30/20 rule is not set in stone, it can and should be adjusted depending on your lifestyle and situation. Before we get into the many ways you could (and should) adjust this rule to make it work for you, let’s dive down into what the standard and known 50/30/20 rule is and what it stands for. 

The Traditional 50/30/20 Rule

50%- NEEDS

Your needs represent everything housing-related, such as;

• Rent/Mortgage
• Utilities
• Groceries
• Transportation
• Minimum Debt Payments (Car Loan, Student Loans, Credit Card, etc)
• Health Insurance
• Car Insurance
• Child Care
• Phone Bill

Pretty much everything you need for survival will go under your needs. The idea is that all of these expenses do not equal more than 50% of your take-home pay. 

30%- WANTS

Wants are the things that are not essential, such as;

• Monthly Subscriptions
• Restaurants
• Movies/Entertainment 
• Travel
• Gym
• Latest electronic gadgets 
• Clothes

20%- SAVINGS

The remaining 20% under the 50/30/20 budget rule should go towards Investments and savings, the idea behind this is that the first 15% should go towards your investments (401ks, Roth IRAs, IRAs, Brokerage Accounts, and so on) and the last 5% should go towards Emergency Fund and other funds and saving goals. 

The idea behind this budget “rule” is not set in stone, but is more of a suggestion and a guide, when looking into this rule look at it as a tool to a better budget.  

Other Versions Of the 50/30/20 Budget Rule

    1. The 70/20/10 Rule

– This rule follows the idea that 70% will be spent on needs/housing and wants such as your lifestyle. 20% will be spent on Savings such as your emergency fund and other savings. And the remaining 10% will be spent on debt, investment or charities, or other things and goals. 

This rule falls better for those that live in high-cost cities and 50% for housing and needs is close to impossible. 

2. The 60/20/20 Rule

– This rule follows the same idea as the 70/20/10 rule in such that is more for those that live in high-cost cities. The rule is for 60% to be for housing/needs, 20% for wants, and the remaining 20% for savings. 

3. The 50/30/20 Rule For Millennial  

– This rule is the same one as the one popularized by Senator Warren, the difference between this one is that the 30% is for savings and 20% is for wants. This is because millennial have more goals and we want to accomplish more, therefore saving 30% instead of only 20% will help us achieve those goals.

Keep in mind

– This rule does not work for everyone, due to different aspects- one of them being the cost of living is different. 

– Look at this rule as a tool and make adjustments when needed- do what works best for you. 

– The 30% or 20% could be used to pay off debt if you want to become debt-free. 

This Content has originally written by Ambar and published on August 20, 2020. No Copyright/IPR breach is intended.

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