The 50/30/20 rule is a guide for planning your expenses in order to be prepared for unforeseen future situations.
Your expenses can be classified into three:
Requirements (50%)
Will (30%)
Savings & Investments (20%)
Your needs
50% of the income will be spent on necessities. These are important and unavoidable expenses such as housing, food, transportation, medications, and utility bills. Anything needed for survival will be classified under this category.
Your wishes
30% is spent on your wishes. Distinguishing between needs and wants is not that easy. Will is anything that is “more” and usually involves something you do not for survival. Examples are shopping, traveling, hobbies and gym memberships.
Your investment
The rest (20%) is for savings (including your retirement contributions), investments and to pay off debts. The goal is to create a more comfortable cushion of financial security in the future.
The percentages on the 50/30/20 rule aren’t fixed - it’s just a general guide to help estimate your budget. You can set a percentage that suits your own needs to achieve your financial goals!
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BUSINESS & MONEY
