Learning how to manage your money when you’ve never budgeted before can be challenging. You must not only plan, but also decide how to spend your money, which will be a difficult decision. A percentage-based budget, which splits your monthly income between spending, saving, paying off debt, and any other categories you decide, is an excellent approach to keep things simple.
The 50/30/20 method is among the most widely used percentage-based budgets. Spending 50% on needs, 30% on wants, and 20% on savings is the general notion of dividing your money into these three areas.
In this article, we explain what the 50/30/20 rule is and how it works according to Citizens Bank.
50% goes to necessities
Necessities are the expenses you definitely must pay and the goods you need to survive. These costs may include mortgage or rent payments, auto loans, food expenses, insurance, medical bills, minimum debt payments, and utility bills.
30% goes to wants
Thirty percent of your income should go toward optional costs or “wants.” A want could be anything, including eating out, shopping for clothes, Starbucks, your cable or cellphone plan, travel, presents, or a gym membership. They are optional charges even though they may be significant to you in the big picture.
20% goes to savings
You should put away the remaining 20% of your income as savings. 61% of adults between the ages of 25 and 34 have less than $1,000 in savings. In order to save, you can open a deposit account for a down payment, a vacation, an emergency fund, or any other greater objective.
Also see: What to do if you love your job, but not your boss
