“All Your Worth: The Ultimate Lifetime Money Plan” book author Elizabeth Warren popularized the 50/20/30 budget. The rule is to divide your after tax income into three categories of spending: 50% on needs, 30% on wants, and 20% on savings.
This intuitive and straightforward rule can help you draw up a reasonable budget that you can stick to over time in order to meet your financial goals.
Summary & Takeaways
- The rule states that you should spend up to 50% of your after tax income on daily needs and other obligations that you have.
- The remaining half should be divide between 20% savings and debt repayment and 30% to everything else that you might want.
- The rule is a template that is intended to help individuals manage their money and save for emergency and retirement.
Half of your after tax income you need to use for daily needs and bill payments that you must pay. If you are spending more than 50% on your daily needs then you will have to either cut down expenses or try to change your lifestyle
Wants are all those things which are not absolutely essential. This include going to movie, gym or out for dinner. This is category you can save some extra to push to 20% considering exercise at home instead of joining gym.
At last, attempt to apportion 20% of your overall gain to reserve funds and ventures. This incorporates adding cash to a backup stash in a bank investment account, making IRA commitments to a shared asset record, and putting resources into the securities exchange. You ought to have no less than 90 days of crisis reserve funds available on the off chance that you lose your employment or an unanticipated occasion happens. From that point forward, center around retirement and meeting other monetary objectives not too far off.
By following the 50/30/20 rule, you can plan your expenses, enjoy some discretionary spending, and save for the future.