We all know budgeting is good. However, there is no time to open an excel sheet and insert numbers mindlessly.

Yet, you are enjoying your daily life spending money. Sometimes, you feel guilty spending money. Sometimes, you think that you are not saving enough for your future.

In other time, you are enjoying party with your friends, paying the bills. Yet, you are not happy to find that you don’t have enough to pay your electricity bill.

What if there is a method to create a budget? You wouldn’t feel guilty. You can spend money as per your wish.

Your retirement fund is growing at the same time.

Wouldn’t that be wonderful.

Let’s discuss a budgeting rule called 50/30/20. It will save you time yet its very effective.

Chances are, you might have heard about the 50/ 30/ 20 rule to manage your money.

This 50/ 30/ 20 method is a widely used method that does work for most of the time.

What is 50/ 30/ 20 rule?

The 50/30/20 rule is one of the most useful methods of budgeting that can help you maintain your budgeting according to your income and your savings goals.

This method is very well known and incredibly followed approach by many people who want financial independence and want to achieve their financial goals.

So why this method is so popular?

If you want to take care of your daily essentials, make your desires come true and save money for uncertain situations and dreams, you should use 50/ 30/ 20 method for doing all these.

The three parts represent—

• Essentials- 50%
• Desires and needs- 30%
• Savings and retirement – 20%

This method allocates your money into three areas to make the best use of your money.

The 50% of your total income goes for the essentials.

30% of your total income goes for the wants and desires.

The remaining 20% of your total income is kept as the savings and investment for your retirement plans of the future.

That’s what 50/ 30/ 20 rule means, and it is an effective and efficient way to manage your money accordingly.

So, if you want to use an easy method to move towards financial freedom, you may continue reading.

Is the method customisable?

This method is fully flexible.

If you want, then you may change the numbers. Its true that 50/ 30/ 20 is the standard and most effective way to use this method.

But if you want you can make it 50/ 20/ 30 or 40/ 30/ 30. You can customise the numbers as per you and your goals.

If you earn more than your expenses and can afford to make the number higher than just 50, you may lower the other 50%.

If you focus more on your wants, you may raise the 30% rate.

If your focus is on savings, you may raise the rate from 20% to any higher rate you like.

As your life is not similar to others, so you rule don’t need to be the same.

It is your budget, and so you may make it as you like it to be.

You can customise the numbers and when you become stable with the model, use it for yourself.

It is just that 50/ 30/ 20 is the most used method and it is universally applicable.

Make a suitable ratio for you and mark that you will need to use the same percentage for every month if no changes come to total your income or expenditures and costs.

Now, lets dive deep into this 50/30/20

Essential expenses 50%

To get started with this part, you need to set aside half of your income which is 50% for the basic requirements in your life that you must need.

50% of your income may seem like a large chunk, but once you evaluate everything that falls into this category, it will make sense to you.

Mainly, your necessary expenditures are those you would undoubtedly estimate that you will have to pay. It’s not a thing that can be skipped.

Regardless of where you live, where you work, or what your plans are and how you want them to come. In general, these expenditures are approximately the same for every person. The expenses are—

• Rent or mortgage: The rent or mortgage that you must expend at the end of every month
• Utilities: Utilities are absolute necessary for every household
• Groceries: Groceries are the items without these you can’t survive? Let alone make a budget.
• Transportation cost: You will not be in a lockdown situation, always right? You do need transportation to travel from one place to another.
• Tuition fees (or student loan repayment): You will need to pay for your educational cost for sure. You can’t skip this.
• Mobile phone and Internet: In this stage of life, you can’t do without a smart phone and Internet. How are you going to communicate with the outside world then?
• Other: There are many unexpected expenditures that you will need to pay as well as few emergency expenditures that you must pay.

While trying to start an effective budget, you need to follow this method.

And do remember, it is more about the total amount than just the individual costs of your expenditures.

For illustration, some people live in a big house and own a car, yet want to walk to work because it’s closer, while others have much lower housing costs, but transportation is always more expensive.

So, things are going to differ from people to people, but the main rhythm is almost the same for everyone.

Wants and desires 30%

The second category is the most crucial. It is the 30% that includes the wants and desires of yours.

This luxury is the cheat code of your life that will bring happiness to you. This method consists of unnecessary expenses that reinforce your lifestyle and makes you feel good.

Many people don’t like this part. They think this is not needed. But they aren’t right in this case.

Following a budget is not easy at all like following a diet.

You must have a cheat day to make your wishes come true. You may call this a luxury part of your life that is your gift for following the budget guideline.

This 30% is the category that renders this budget work and adds a fun part in your boring life.

It is all the things you want in life. Life is uncertain. We don’t know what will happen tomorrow.

So, you better live your life fully. And 30% is a decent amount for your extravagance.

The things that include in wants and desires are—

• Outings: You do need tours for relaxation, and as you are a social being, you can not but follow this thing.
• Vacations: Vacations are like treats for you. You worked hard and became a better person. It would be best if you treat yourself with some holidays.
• Shopping for favourite things: You may go for shopping and buy yourself the stuff you like, dress correctly and follow your hobbies.
• Movie and chill: You do need some relaxation, after an exhausting day. So, getting Netflix, amazon prime to watch movies.

These are the things you may need for your desires. But not everyone has the same passions.

So, you should determine your wants and enlist them accordingly to your wish list. Then you may include all them in your 30% budget.

Savings and retirement plans 20%

The next step is to assign 20% of your total (after-tax) pay towards your savings and plans. This sector of the model includes savings plans, retirement budgets, debt payments. These things are essential for you to to add up here.

This step is a plus point in your budget. This part of your account is the leading player to make your life safe and sound.

By allocating the money to the savings and retirement part, you make sure that your future is secure and you can handle the hazardous situations without going on debt.

This part should be prioritised even before your daily expenses for life. This 20% is an essential part of your budget.

This part is the one that will lead you ahead in life and help you build your life like you want to be.

• Investments: You do need to make some investments for your future. Idle money is the silliest thing. Investment is a must for everyone.
• Savings: One of the most significant steps to financial budget is having emergency funds, so you don’t step backwards each very time a surprising expenditure arises without any precautions
• Debt-reduction payments: This is for expenses that are due, and you may have to pay.
• Sometimes we take a loan from the bank or have our credit card bills pending.

This part is to handle these costs. Small steps make the road easier to cross.

This category formulates the priority of assisting you to enhance your financial health.

This bonus makes you feel secure. Being poor isn’t the fault; the fault is not being able to use the money accurately.

This 20% is directly dedicated to the savings part and used to make your life goals come true to life.

Nothing else should be concerned here. Many of you may think of skipping this part, but remember one thing, being rich doesn’t make you feel prepared for any situations.

But you are taking the precautions to prevent any uncertainty. So, adding this part is a must for every person.

Do you need 50/30/20 in your life?

There are plenty of different reasons for starting a budget. I have already discussed the necessity of budgeting.

To make you double sure about starting budgeting let us write down the benefits again—

• To save money from unnecessary buffers.
• To make your dream house, car or vacations come true.
• To secure your life and health.
• To track your money.
• To lessen your useless spending habits.
• To improve your financial conditions.
• To eliminate your debts and credit spending.

I hope these answers reply to your questions about why you’re budgeting and why you are using this 50/ 30/ 20 method to do so.

This will lead you towards a fair and carefree life.

So, what are you waiting for, let’s get started?

You can say by now that any person with income can use this method. This will help you allocate your money wisely.

let’s look at some other perspective of the 50/ 30/ 20 method.

Why the 50/30/20 Budget Works

This method works well for those who are new to budgeting. This is an easy and effective method to use, and almost every person understands this method.

People who are put off by rigid spreadsheets and tired of the numbers, they may stop rolling their eyes and start using this method.

Also, this method is quite flexible, and you can make it work as per your lifestyle. This is the main key of this technique that makes it easy to use.

Dividing your expenditures into these three widespread sectors will get you understanding about the significance of your purchases, and how the in necessary investments lead you towards something that is not worth your money.

An example of 50/ 30/ 20 method

Let’s take an example of my client to make things clearer to you.

The first story is about a housewife named Sara. She is a homemaker, and she always thinks about the wellbeing of her family.

She is the one who manages all the expenses for her family.

She gets a budget of $10,000 to spend for one month. She decided to use the money wisely and tried making a budget for that.

Her money segments were like these—

• For important stuff and things, she has allocated $5,000. She paid her day to day stuff with this money, paid her rent, brought some utilities and groceries.
• For the wants and desires of hers and her family, she has kept $3,000.

With his money, she can go to a good restaurant, make cookies for her children on weekends, go for movies and relax in a spa.

• For savings and retirement plans she has kept the rest $2,000. This $2,000 will work as a shield for her. She can repay her debts, invest her money on shares or funds, create an emergency fund for their future uncertainty.

Now let’s find out if she can follow the method or not. She may pay off all the cost of monthly groceries, utilities, transportation cost and other costs using the $5,000.

She has the $3,000 to enjoy her life with her family.

She, along with her family, can go to watch movie or go to a restaurant to have dinner.

Lastly, she has the $2,000 as a savings and retirement plan.

If any family member becomes sick or need to repay a debt or be prepared for any uncertain moments, she may use this amount to avoid problems.

Conclusion:

So, you may have realised by now that budgeting brings prosperity and fair decision-making process to you.

You should start making a budget using 50/ 30/ 20 method without any delay and start making your life better by everyday dollar.

Who does not want to lead a good and secure life? Everyone does.

So, you may get started with the new journey of budgeting with the help of 50/ 30/ 20 method of budgeting.