– The budgeting rule is a simple way to keep spending in check with savings goals
– The guideline is great for those who are new to the world of money management
– Concept allows people to get a handle on personal finance without much effort
The 50/20/30 rule is a guide to distributing your income and it works to give you a clear sense of where your financial priorities lie.
The idea is that as much as 50 per cent should to be spent on essentials, 20 per cent ferreted away for savings and the remaining 30 per cent dedicated to lifestyle.
Here, FEMAIL takes a look at the unique concept and reveals just how easy it is to create an organised budgeting plan.
Essentials – 50 per cent of your income
The cornerstone of this rule is to set aside 50 per cent of your net income (income after tax) for essential living.
And while this might seem like a lot, it’s a sum that includes the absolute necessities in life – those you would be paying out no matter what your life circumstances.
According to budgeting website Mint: ‘In general, these expenses are nearly the same for everyone and include housing, food, transportation costs and utility bills.’
This category is strictly for needs – those payments that would severely impact your life if you were to forego them. Anything else falls into the category of wants.
Savings – 20 per cent of your income
The remaining 50 per cent of your money is split two ways.
Twenty per cent is dedicated to savings, ahead of discretionary spending, to give you a chance to build some reserves.
Here, you can decide whether you want to start a special fund, pay down mshwari/Tala debt, or do both.
‘Think of this as your “get ahead” category. Whereas 50 per cent (or less) of your income is the goal for essentials, 20 per cent – or more – should be your goal as far as obligations are concerned.’
Personal – 30 per cent of your income
The last category, 30 per cent, can be used for spending on wants.
While this might sound like the most fun part of the budget, it’s one that can be a little tricky.
The reason for this is that as well as discretionary spending – that’s spending on luxuries – this category may need to stretch to cover other expenses such as gym memberships, clothing or streaming service subscriptions.