What Is The Trending 50-30-20 Rule On Budget?

      If you are new at budgeting, this 50-30-20 Rule was popularized by Senator Elizabeth Warren and her daughter Amelia Warren Tyagi. The main purpose why they invented this rule is to help families track their expenses and be financially prepared for emergencies. Since then, this rule has become popular among millennials and beginners who have just started managing finances and saving money. 

      Getting your salary can really be overwhelming, especially if you have stuff that you want to buy and a lifestyle you want to achieve. Payday comes and you go splurging. For the rest of the month, you miss meals, forget the bills and the rent, or you go into massive debt. All because you did not employ the right budgeting schemes and got carried away, thinking you have some more penny for tomorrow and for emergencies.

      This 50-30-20 rule will teach you how to become a wise budgeter. Let's illustrate how it works.

      In a nutshell, this is how you will spend your monthly salary:

• 50% will go to necessities or living expenses.

• 30% will go to wants and other personal lifestyle choices.

• 20% will go to savings, investments, and debt payments.

      As an illustration, if you have a monthly $2,000 take-home pay, this is how you budget it according to the 50-30-20 rule: 

• $1,000 - essentials and necessities

• $600 - wants or discretionary spending

• $400 - savings 

      The 3 categories are distinct and mutually exclusive. Each item on your expenses should fall into only one category. Any overlapping can mess with the whole method and you’ll end up overspending and undersaving. 

Living Expenses 

      The following are the usual monthly living expenses of a person:

• Rent and housing expenses

• Food and groceries (including pet needs)

• Transportation allowance

• Utility bills (electricity, water, gas)

• Internet and phone plans

• Clothing

• Children's schooling

Wants

      Your wants are goods and services that are not really necessary for daily living but that which you desire to have. It could be a new phone, dining out experience, entertainment, subscription plans, and other stuff. 

Savings /Investments /Debt Payments

      The 50-30-20 rule teaches you to prioritize debt payments as well. When you are debt-free, you can freely enjoy your savings without financial obligation to anyone. When you are finally debt-free, you can already put this 20% of your salary to investments of your choice and let it grow.

      The 50-30-20 rule is simple and very easy to follow. People spend money until they realize they have no more to save. It teaches a person to have a definite percentage to save or invest, instead of spending, and whatever is left would go to his savings. More often than not, a person would use all his salary for things he thought he needed.

      Moreover, your monthly salary will be well-accounted for. If you need to save some more to achieve a certain financial goal, then you would know which of the categories and expenses can be adjusted. Everything will be easier to calculate.

      To make the most of this 50-30-20 rule, jot down all the computations, projected and actual expenses in a tiny notebook or in a financial app using your phone. You can also see which of the expenses you have to let go of so you can save more. This rule is applicable not only to individuals but also to families and couples who pool their finances.