The 50/30/20 rule is a budgeting technique that involves dividing your after-tax income into three primary categories: needs, wants, and savings or debt payments. The rule was popularized by then-professor (now senator) Elizabeth Warren and her daughter, Amelia Warren Tyagi, in their book "All Your Worth: The Ultimate Lifetime Money Plan". Heres how the rule breaks down:
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50% to needs: This category includes essential expenses that you must-have or must-do, such as housing, utilities, transportation, groceries, and healthcare.
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30% to wants: This category covers discretionary spending on non-essential items and experiences, such as dining out, entertainment, travel, and hobbies.
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20% to savings and debt payments: The remaining 20% should be allocated towards savings, including emergency funds, retirement savings, and debt repayment.
The 50/30/20 rule provides a straightforward framework for budgeting, making it simple to comprehend and apply. It can be a useful starting point for individuals who need help with budgeting or are getting back on track after a setback. However, it may not be realistic for those with low incomes or who live in areas with high living costs.
