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What Is The 50/30/20 Rule? And more importantly...should you use it?

When it comes to spending, most of us struggle to play by the rules. We seem to vacillate between shunning all restraint or not allowing ourselves any luxuries.

The 50/20/30 rules is basically this: 50% of after-tax income goes towards needs, 30% on wants and 20% goes towards savings. This can be a great rule of thumb to start with. While the 50/30/20 rule isn't a perfect solution for everyone, it can be a perfect place to start. But depending on your unique situation you may need to play with the ratio. For example, if you are struggling with a lot of debt obviously that has to be prioritized. Best to reduce wants first and saving second to reduce the debt.

After awhile you may also find that you enjoy saving more than you realize. If that is the case use the same ratios but make savings your 30%.

Now all of this may seem simple....but, what lies at the root of the ability to have an effective spending plan are good habits. So, be patient with yourself and take the time to develop those good habits. This is where having an accountability partner is key. That could be a trusted family member, friend or a financial counselor, coach or advisor.

If you are interested in getting a clearer picture of your finances or need help developing a reasonable spending plan, please get in touch. Feel free to email, call or use the request form on this website.


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