The 50/30/20 Budget Rule is a simple but effective budgeting method to help you manage your finances easily. Many people face the challenge of managing their expenses while trying to enjoy life with their hard earned money. The 50/30/20 Budget Rule is an ideal solution for balancing essential expenses, lifestyle choices, and savings.
The 50/30/20 budget rule divides your after-tax income into three main categories: needs, wants, and savings. We will explore each category in detail and help you implement the 50/30/20 budget rule to manage your money without stress.
The 50/30/20 Budget Rule is a simple budgeting method that allocates 50% of income to needs, 30% to wants, and 20% to savings and debt closures.
According to the 50/30/20 Budget Rule, you can use:
Unlike complicated budget spreadsheets, the 50/30/20 rule is:
For anyone looking for a simple way to manage their finances, the 50/30/20 rule is a perfect option.
Needs are the essentials you must pay for to live. These are expenses you cannot avoid.
Examples of Needs: rent, electricity, water, gas, groceries, transportation, insurance, minimum debt payments.
What is your total income after tax? Allocate 50% of that amount for your needs.
For example, if your monthly income is ₹1,00,000 after taxes:
Needs = 0.50 × 1,00,000 = ₹50,000
Wants are non-essential expenses that enhance your lifestyle but are not essential for survival.
Examples of Wants: dining out, entertainment, travel, vacations and weekend trips, subscriptions, and luxury items.
Following the same monthly income example of ₹1,00,000:
Wants = 0.30 × 1,00,000 = ₹30,000
This category includes saving for the future and repaying debt beyond the minimum payments.
Examples: Emergency Funds, Retirement Accounts, Investments, Extra Debt Payments.
Using the same monthly income example:
Savings and Debt Repayment = 0.20 × ₹1,00,000 = ₹20,000
Necessities (50%):
Wants (30%):
Savings (20%):