Search

Applying the 50-30-20 Rule: Managing Your Finances

The 50-30-20 method might be a good option if you’re in the habit of downloading budgeting apps only to abandon them by the third day. Check out this budgeting tip!
Applying the 50-30-20 Rule
Applying the 50-30-20 Rule: Managing Your Finances
It is often the simple things in life that make all the difference. Managing your budget and money doesn't have to be complicated. Check out the simplest method here.
In this article

There is no need to complicate budgeting, nor should it take up a lot of time. Using the 50-30-20 rule, you can budget your monthly expenses exactly according to your savings and living costs. It’s easy to avoid overspending and build your savings with a clear monthly budget that shows you the big picture without having to record every single transaction.

The 50-30-20 method might be a good option if you’re in the habit of downloading budgeting apps only to abandon them by the third day. Check out this budgeting tip, which we found to be one of the best.

What is the 50-30-20 Rule?

Budgeting with the 50-30-20 rule is an easy, simple, and sustainable way to manage your money. It says to allocate 50% of your after-tax income to necessities, 30% to wants, and 20% to savings each month.

Keep your expenses balanced across these major spending areas to put your money to work more effectively. Spend less time and energy digging into the details of each category when you only have three to track.

You can apply it effectively to reach any financial goal, from saving for a rainy day to paying off debts.

See also about: Personal Finance 101: 7 financial health tips you can learn online

How to Effectively Apply the 50-30-20 Rule

A 50-30-20 budget may look like this:

Use 50% of Your Money on Needs

Expenses for necessities are expenses that can’t be avoided. After taxes, you should be able to cover your most necessary expenses with 50% of your income.

These needs may include:

  • Housing rent
  • Utility bills
  • Transportation costs
  • Healthcare, vehicle and other insurance
  • Groceries

People have different budgets. Make some changes if your expenses exceed 50% of your take-home income if you find that your needs exceed 50%. You could do this by switching to a different energy provider or finding ways to save money while grocery shopping. The change could also entail a bigger change in lifestyle, such as finding a less expensive place to live.

Use 30% of Your Money for Wants

In addition to meeting your most basic needs with 50% of your after-tax income, 30% can be used to meet your wants. You can live without wants if you have to because they are not essential expenses. 

  • Apparel shopping
  • Dining out
  • Vacations
  • Entertainment

Following the 50-30-20 rule doesn’t mean you can’t live your life to the fullest. Curbing unnecessary overspending in your budget can make you more conscious about your money.

Keep 20% of Your Money for Future Use

You can build a better, more durable savings plan by consistently setting aside 20% of your pay each month. It doesn’t matter if you’re working towards building an emergency fund, planning a long-term financial future, or even saving for a down payment.

Also know about: How to File Taxes as a Freelancer

How to Apply the 50-30-20 Rule: A Step-by-Step Guide

How does the 50-30-20 rule actually work? This simple budgeting rule requires you to categorize your spending by income and calculate the 50-30-20 ratio. How it works:

1. Calculate Your After-Tax Income

Calculate your after-tax income before applying the 50/30/20 rule. If you are a freelancer, your after-tax income will be your monthly earnings, less your business expenses and your tax set aside. 

This will be easier if you have a steady paycheck as an employee. Observe how much money lands in your bank account each month based on your payslip. Health insurance and pension funds may be automatically deducted from your paycheck. Add them back in.

2. Make a List of Your Recent Spending by Category

In order to understand where your money goes each month, you have to look at how and where your income has been spent. Insights are available on the N26 app, or you can download a copy of your bank statement from the past 30 days. Your transactions are automatically organized into categories such as Food & Groceries, Salary, Leisure & Entertainment, and more.

3. Assess Your Spending and Adjust It to Match the 50-30-20 Rule

You can now adjust your budget to reflect the 50-30-20 rule once you know how much of your money goes to needs, wants, and savings each month. 

Was this helpful?

Did you like the post or would you like to give some feedback? Let us know your opinion by clicking one of the buttons below!

👍👎

Author

Picture of Shirlene Grace Isaac

Shirlene Grace Isaac

Shirlene puts words on the Internet because she loves to do so and also for the money! She is a singer, songwriter, occasional poet, artist and muser — all in the body of a 20 something. She's a taleteller of sorts often looking for opportunities to narrate stories untold.

Editor

This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

Related Posts

Will Venmo Refund Money If Scammed?
Will Venmo Refund Money If Scammed?
Will Venmo reimburse funds in case of fraud? In this blog, we will explain the process of spotting a Venmo fraud and the best ways to prevent your hard-earned money from a scam.
Will Google Pay Refund Money if Scammed
Will Google Pay Refund Money in 2024 if Scammed?
Your Google Pay account's security is paramount, and you must be alert of any hacking efforts. If you see signs of a possible breach or detecting illegal access, here's how you can protect your money.
speedy cash scams
Speedy Cash Scams in 2024
Speedy cash scams comprise a wide range of dishonest techniques, aiming to exploit those needing immediate financial aid. Let's understand the vital strategies to protect yourself from falling prey to these digital dangers.
Snapchat cash app scams
Snapchat Cash App Scams and How to Avoid Them
Snapchat has carved itself a niche, garnering millions of users worldwide. However, scammers have taken advantage of its vast popularity to deceive naive victims. Here's a guide to help you avoid Snapchat Cash App scams.
Does Apple Pay Refund Money if Scammed
Does Apple Pay Refund Money if Scammed?
While Apple Pay has quickly become the go-to solution for consumers in digital purchases, it is important to be aware of scamsters. Let's understand Apple Pay's refund rules and the options open to consumers caught up in the tragic web of fraud.
Does PayPal Refund Money If Scammed
Does PayPal Refund Money If Scammed?
Being one of the most widely used online payment methods, PayPal has taken several measures to ensure the safety of its customers. However, if you do get scammed, does PayPal refund your money? Let's explore the details.
Features
Essentials

Get up to $1,000 for emergencies

Send money to anyone in the US

Ger personalized financial insights

Monitor and grow credit score

Save up to 40% on car insurance

Get up to $1,000 for loss of income

Insure up to $1 Million

Coming Soon

File federal and state taxes at low cost

Quick estimate of your tax returns

Get up to $1,000 for emergencies

Send money to anyone in the US

Save big on auto insurance - compare quotes now!

Zip Code:
Zip Code: