The 50/30/20 Rule is a tip on how to budget your finances and meet financial
goals. This calls for allocating your after-tax income in percentages: 50% towards
necessities, 30% towards wants, and 20% towards savings. The necessities are
bills that you have to pay for and what you need for survival, like living costs,
food, insurance, debt payments, transportation (if necessary) and utilities. Fifty
percent of your after-tax income should cover your necessities. However, if you
need to slightly adjust to fulfill payments of your necessities by cutting back on
wants or savings, then do so! The wants are the items that you do not need to
have to live, like entertainment, shopping trips, newest tech toys, etc. Almost
everything in your “wants” could be optional if it came down to it. You do not
have to have that brand-new iPhone or car, there are other reasonable purchases
to be made. These are the smaller extra things you want to pay for to make life
more fun or enjoyable. The remaining twenty will go towards savings, and/or
investments. This could be money for emergency funds, investing in the stock
market, or mutual funds. Keep in mind that it is important to have a safety net of
cash in the case of losing your job or other unforeseen events.
Article Source: https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp
