The 50-30-20 method divides money into three main categories based on after- tax income:
- 50% goes toward needs, which are essential expenses such as rent or mortgage, utilities, groceries, insurance, transportation, and minimum debt payments.
- 30% goes toward wants, which are non-essential items or lifestyle choices like dining out, entertainment, travel, hobbies, and luxury purchases.
- 20% is allocated to savings and debt repayment, including building emergency funds, investing, and paying down debts beyond minimum payments.
This budgeting method provides a simple guideline to balance necessary spending, discretionary spending, and saving for financial goals.
