Money Management for All Ages: An Introduction to the 50-30-20 Rule
Money management is essential, no matter what stage of life you’re in. Here’s what you need to know about the 50-30-20 rule and how it can help you manage your money.
The 50-30-20 rule
The 50-30-20 rule is a budgeting approach that divides your after-tax income into three categories: needs, wants and savings. 50% of your income goes towards needs: rent/mortgage, groceries, transportation, utilities, and other necessities. 30% of your income goes towards wants: entertainment, dining out, vacations, and other non-essential items. 20% of your income goes towards savings: retirement, emergency fund, other long-term investments, and debt repayments.
Using the 50-30-20 rule
The 50-30-20 rule helps you prioritize your spending and makes sure you’re saving for the future. After you’ve determined how much of your income goes into each category, you can adjust accordingly. If you need to cut back on a particular category, you can do so.
Here’s an example budget using the 50-30-20 rule for someone with a $36,000 annual salary.
Monthly Salary (after-tax): $2,700
| 50% Needs: | 30% Wants: | 20% Savings/Debt |
|---|---|---|
| Housing: $800 | Entertainment: $150 | Retirement: $300 |
| Groceries: $300 | Clothing: $100 | Emergency Fund: $100 |
| Transportation: $150 | Personal care: $100 | Debt Repayment: $240 |
| Utilities: $100 | Subscriptions: $150 | |
| Healthcare: $50 | Eating out: $200 | |
| Insurance: $50 | Hobbies: $110 | |
| Total Needs: $1,350 | Total Wants: $810 | Total Savings: $540 |
Let’s get started!
Here are the steps to get started:
1. Determine your monthly after-tax income: Your first step is to calculate your after-tax income. This is the amount of money that is deposited in your bank account (if you are paid bi-weekly, multiply your pay by 2).
2. Calculate your 50-30-20 budget using the calculator below.
3. Track your spending: Once you have your 50-30-20 budget in place, you need to track your spending to make sure you are staying within your budget.
4. Make adjustments: If you find that your spending is out of balance, you can make adjustments to get back on track. This may mean cutting back in certain areas or increasing your savings or debt repayment amount.
5. Re-evaluate regularly: It is important to re-evaluate your budget regularly to make sure it is still working for you. This may mean making changes as your income and expenses change.
50-30-20 Budget Calculator
Allocation for Needs (50%):
Allocation for Wants (30%):
Allocation for Savings (20%):
But…my needs are more than 50%
Don’t be discouraged, you simply need to adjust the percentages of your budget accordingly. For instance, you may need to decrease the percentage you allocate to wants to 20% and increase the percentage you allocate to needs to 60%. You could also adjust your savings percentage down to 10% to make up for the additional funds allocated to needs. It’s important to remember that the 50-30-20 rule is just a guideline and that everyone’s budget should be customized to their individual needs and financial goals.
One last helpful hint
We talked about Bucket Budgeting in a previous edition of Money Talks. Bucket Budgeting in combination with the 50-30-20 rule is a powerful way to manage your money. Once you have your budget finalized, create Saving Jars in QUBER for any upcoming budgeting items, and save for them every time you get paid. That way the money is there when you need it, and you don’t need to turn to high-interest debt to cover the costs. 💰