The 50/30/20 Budget Rule is one of the best financial rules of thumbs. This is a popular tool that helps you break down your budget. In a nutshell:
You put 50% of your income towards necessities, such as your bills, housing and all payments you need to make. Second, 30% can be allocated for your wants such as traveling, dining, and entertainment. Lastly, 20% are reserved for savings, investments, or retirement.
50% - What do you need to pay for?
This includes bills that you absolutely must pay and all that is necessary for survival like rent, car payments, groceries, insurance, health care, and so on.
30% - This is a tricky area but the great news is that you can always adjust it. Here, you allocate for your wants and those aren’t necessarily essential like a new bag, restaurant, dinner and movies out, vacations and etc. However if you can limit some wants and add more to the third category - that’s when you’re learning.
20% - This money goes for investments, emergency savings and just in general in a savings account so you slowly build it up. Quick tip - you should have at least 3 months of emergency savings! Start with building that if you don’t.
Why has this rule become a favorite?
Because it makes a lot of people feel better to break down things. If you can break down your income into categories that are clearly defined - then you can create a balance between what you need, want and your goals. It also shows you what your priorities are, especially when you have to separate your needs from wants.
Each individual has starting points for budgeting that are tailored to their situation. This rule allows you to view your money in a different way, and adjust the way you’re going to spend.
Why not use the ila app and put the 50/30/20 rule into action with your own Hassalas:
- Open a Hassala for each your essentials in advance, such as for your car insurance or an upcoming big purchase
- Plan your wants by slowly building up a budget in your Hassala for your next vacation or that watch you always wanted to get
- Build your savings by setting your Hassala up to automatically deduct from your current account on a monthly basis