Stop Wasting Money! Start Budgeting with the 50/30/20 Rule

The 50/30/20 Rule is a famous budgeting strategy that divides your income into needs, wants, and savings.

According to this rule, you should need 50% of your income to live your life. You may dedicate 30% of what you gain to buy things you wish. And you should save the remaining 20%.

• 50% Needs: rent, groceries, utilities, and essential living expenses.
• 30% Wants: dining out, entertainment, fashion clothes and devices, and non-essential purchases.
• 20% Savings: investments or other savings.

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You might have a more complex or simple financial plan based on your situation. But the 50/30/20 Rule is the more versatile and adaptable tool you could use. So, it is suitable for most people.

• It’s simple. You don’t need to track every single expense. You could work with rough estimations.
• It’s flexible. You can adapt it to any income or lifestyle if you spend too much on wants.
• It’s balanced. You can still spend on fun activities but also think about your future.

When people think about the 50/30/20 Rule, they assume they must multiply their income by 0.5, 0.3, and 0.2. But that’s only the core concept. Let’s make it more resistant.

This approach doesn’t consider people who need more than 50% of their salaries to live. How could they follow this rule?

I want to suggest another approach. Let’s call it the “Reality Check 50/30/20 Rule” (or RC 50/30/20 Rule).

Follow these steps to build an RC50/30/20 Budget.

If you are an employee, that shouldn’t be a trouble. Otherwise, remove taxes from your income.

I know I promised not to micro-manage your expenses. But you have to start with an idea of your monthly expenses.

Do you have any subscriptions?

How much do you pay for rent?

Put all those entries under the correct category: needs, wants, and savings.

Here, you can understand how much money you will need monthly to live. If that’s more than 50%, remove the budget from the other two categories. If it’s less, you can increase the other two.

However, keep a 5-10% margin on your needs. Otherwise, you will take money from your Wants budget every month.

Most times, this won’t be the other half of the income. So, you could calculate the 60% and 40% on the remaining money for wants and savings.

You don’t have to micro-manage every single penny. But get a rough idea of where you spend your money.

I suggest using an app that reminds you to input your expenses daily or weekly.

The 50/30/20 Rule is simple to use. But it’s easy to make mistakes as well.

There are common pitfalls that can hinder your progress.

In this section, I want to highlight those I see more often. If you can avoid it, you will probably remain on track.

The Needs category includes everything necessary for you to live. That includes your debts, grocery expenses, tickets to commute to work or car expenses, and your utilities or medical expenses.

But, for sure, it doesn’t include your gym subscription. And, for sure, it doesn’t include your Netflix subscription.

If your life won’t drastically change without it, it’s not a need.

You have to keep track of unexpected expenses and understand where to take the money from.

Also, gifts are not unexpected expenses because you forget your friend’s birthday.

First, you are an awful person. Second, that would be a Wants expense.

There are two reasons why you would adjust a budget:

• a new recursive expense
• a change of salary

In both cases, you need to update your budget. You can’t assume you will have the same availability and needs after these changes.

If your needs grow, your wants and savings will diminish accordingly. If they shrink, you can use all the extra money just for the Wants. And you have to save more too.

The beauty of the 50/30/20 rule is its adaptability.

We all have different financial goals. Some people wish to find a way to save some money. Others might want to invest more. For some, paying up their debts is their highest priority.

No matter your financial goals, you can use the 50/30/20 rule to reach them. Let’s see some examples.

• You save more than 20% of your monthly income.
• You gain much more than you spend.
• You want to achieve financial independence.
• You paid most of your debts and can now focus on growing wealth.

• You spend a lot of money on leisure activities.
• You are young and are gaining your first money.
• You want to enjoy life and don’t care about the future (for now).
• You have enough money to afford more leisure activities and fun.

• You spend most of your salary to live a decent life.
• You have high debts and want to pay them off.
• You don’t make enough money to spend on having fun but still want to save a bit.

For example, I focus on saving. My parents have an apartment where I can live with my girlfriend, and I don’t have to pay the rent. So, I have low needs.

Also, I think more than twice before buying anything. And I always try to avoid useless expenses.

Since I started working, I saved around 40% of my salary. And I plan to do it for a few years to build financial stability and a long-term investment plan.

So, think about your financial goals. What matters the most to you right now?

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