The 50 30 20 Budget Rule Explained

In this day and age, a growing number of individuals are living paycheck to paycheck. 

While the reasons for doing so may vary, this struggle to manage income can take its toll on any household. Fortunately, the personal finance solution known as the 50 30 20 Budgetcan help keep your resources on track.

The following comprehensive guide to the 50 30 20 Budget can help you start off the decade with financial empowerment.

A 50 30 20 budget refers to a formula for dividing up your after-tax income to help reach financial goals. Popularized in Senator Elizabeth Warren’s book, All Your Worth: The Ultimate Lifetime Money Plan, the 50/30/20 rule provides a mathematical formula for dividing your earnings among needs, wants, and savings.

What is a 50 30 20 Budget?

The Three Categories In A  50 30 20 Budget

Needs are bills that you are contractually obligated to pay or that are necessary for basic human survival. These living expenses include rent or mortgage payments, health care, groceries, and utilities.

50 Percent: Need

The “wants” category refers to the non-essential items on your budget. These may include expenses like dining out, vacations, recreational activities, and clothing accessories.

30 Percent: Want

Savings refer to allocations toward a bank savings account, retirement funds, and any investment payments. This means that 20-percent of your income should go into creating an emergency fund, making IRA contributions, and investing in the stock market

20 Percent: Saving

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