The 50/20/30 budgeting rule is the minimalist rule to follow when preparing your budget. This rule helps you to attain consistency in your spending. It solves the basic problems of financial management for beginners.
The rule can be applied as follows:
- First 50%: This section provides for your needs. The basic necessities of your day to day living should receive 50% of your income. And nothing more. Examples are rent, utilities, home-made foods, children education fees, healthcare cost, etc. These are recurring expenses that must be incurred irrespective of your earning power.
- Next 20%: This next category covers all your financial priorities. Such as long term savings and debt payments.
- Final 30%: This category provides for all your spending on lifestyle choices or your wants. Such as a dish-washer, Satellite TV subscription, book or magazine subscription, eating out, etc.
It must be mentioned that there is no point being disturbed if at the end of the exercise you don’t have a perfect 50/20/30 apportioning of your income. Depending on your personal circumstances; there may be a little variation. The point is you now have a quick tool, with which you can seamlessly appropriate your income.
Lastly, for the 50/20/30 rule to have any positive impact, you need some money tracking, cost evaluation, and some emotional digging skills. All of this would be discussed in future posts.