![]() It can help reduce your fixed costs – Huge mortgages and high debt balances have driven most households to live on 75 per cent or more of their monthly income. ![]() This rule has a built-in budget for fun money that you can use for shopping, going to the movies, or anything else you want. You get fun money – When working on your financial goals, it’s easy to fall into the “all or nothing” mindset and forget to allocate money for the fun stuff in life.It’s simple – Instead of keeping track of every single category, you only think about three. When dividing up your income, you simply put the right amount of money into needs, wants, and savings.Different budgets work for different people, and there are pros and cons of using the 50/30/20 rule. Pros and Cons of the 50/30/20 Budgetīudgeting, like weight loss, only works if you stick to the plan. It also includes gym memberships, having dinner at a restaurant or ordering take-out, your morning flat white, and buying gifts for birthdays and Christmas. It includes cable packages, new shoes, salon haircuts, a trip to the Bahamas, and dining out at restaurants. 30 per cent is earmarked for discretionary expensesįor help deciding the difference between a need and a want, think of discretionary expenses as what makes life more fun. It reduces your future obligations and is part of the savings category. While the minimum amount is considered a “need,” this extra money you pay is applied to the principle. This part of your budget plan includes saving for retirement and making sure your emergency fund has enough money in it to cover unplanned life events.īut this also includes putting additional money toward your debt payments to eliminate them and eventually become debt-free. The most significant part of the 50/30/20 budget rule is the 20 per cent you put toward your financial goals. The hard part is determining what is a “need” and what is a “want.”įor instance, a “need” does not include the unlimited data package you have with your mobile phone plan, your Netflix subscription, or buying clothes anyplace other than a discount clothing store. Typically, things you need include food, rent or mortgage payments, prescription medication, car insurance, health insurance, car loans, student loans, minimum credit card payments, electricity and other utility bills, and gas for your car.īasically, it boils down to making sure you take care of food, shelter, and transportation costs first. 50 per cent goes toward needsĪs with any budget, you need to take care of your basic needs before allocating money for other expenses. Instead of 20 or 30 different budget categories, you divide your income into three different buckets: needs, savings and debt, and “wants.”Īs long as you don’t spend more than 50 per cent on needs, 20 per cent on savings, and 30 per cent on everything else, you’re free to spend your money however you’d like. The 50/30/20 rule tries to make budgeting a little easier. With a zero-sum budget, you divide your expenses into specific categories like rent, groceries, gas, entertainment, credit card payments, car insurance, and utility bills.Įvery dollar has a job, and you make a plan for how you’ll spend every single penny. I’m a big fan of the zero-sum budget but a lot of people like the simplicity of the 50/30/20 rule. There are a lot of different ways to divvy up your expenses, and whichever method you choose depends on your goals and lifestyle.īut the bottom line is that you have to live on a budget to achieve any level of financial success. All of them require you to budget your money. There are a lot of experts who claim to have the perfect solution to your money problems, and they all have one thing in common. It will help you control your spending and work toward your financial goals, but it allows for a little more freedom than what you may be used to when it comes to budgeting. If you’re looking for a little more simplicity in your life, or are brand new to the idea of living on a budget, you may want to consider the 50/30/20 budget rule. Wondering what the 50/30/20 budget is all about?
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