50/20/30 Rule

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The 50/20/30 rule splits your budget into 3 main categories.  50% of your monthly total income is spent on fixed costs that are necessities.  These expenses do not vary much each month and are typically used for mortgage payments, utilities, and vehicle payments.  20% is invested in financial foundations to save for retirement or for emergency funds.   This is for long-term savings such as an IRA or reducing short-term debt such as credit card monthly payments.  .  30% is on variable spending that does indeed vary from month to month.  The activities included in the category are eating out in social settings, groceries, shopping, hobbies, and entertainment.   30% is for lifestyle choices that enhance mood and helps individual’s social life.

50/20/30 rule is a guideline everyone should implement because you will truly understand where your money is going.  It is a great way to budget because there is a starting point for dividing your money.  Websites such as Mint.com has budget software to implement 50/20/30 rule to its fullest.  Anyone can keep track of their budget everyday and the software even adjusts for situation changes that increases or decreases your budget.  There are many things that distract individuals from achieving their goals especially when it centers around saving money.  Instead of going blind with budgeting and saving money, individuals should embrace the practical management strategy of 50/20/30 rule.

6 thoughts on “50/20/30 Rule

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