Do You Know the 50/30/20 Rule?

Are you looking for a new budgeting strategy for the end of the year? Let’s take a look at the 50/30/20 rule.

50% of income should go to living expenses or needs

Half of your income is dedicated to required living expenses. This includes groceries, rent, transportation, utilities, etc. By setting a goal percentage for this category it forces us to evaluate how we spend our money on things that are viewed as necessities. Is cheaper rent or a lower car payment needed to keep these expenses under 50%?

30% of income should go to flexible spending or wants

If you have your required living expenses capped at 50%, it will allow you 30% for flexible spending. This is anything that you want, but don’t need. Hobbies, travel, and anything else. When setting a budget that you want to stick to over a long period of time it is important to make room for these items. The goal is to implement a sustainable budgeting method.

20% of income should go to savings

Now we have 20% left that can be saved! The earlier and more that we save for retirement the better, being able to put aside 20% of your income for savings is a great way to start.

Do you have a budgeting strategy that you have found works for you? Let us know what you think!