What is the 50/20/30 Rule?

The 50/20/30 rule is a rule of thumb saving in which the income that a person has throughout the month is divided into percentages in which to spend it. Users use this method to save money and to keep more control of their expenses.

Specifically, this rule works as follows:

  • 50% of the income will go to cover basic needs
  • 30% of the income will go to satisfy whims
  • 20% of the income will go to savings

50% for basic needs

According to this rule, the user is advised not to spend more than 50% of his income on his basic needs. However, for many families or savers this distribution may not be enough; that is to say, they cannot live dedicating only 50% to their daily needs.

Among the expenses that are vital for the day to day and that are counted as basic, include:

  • The personal finances: pay of Mortgages or rentals.
  • The food of savers.
  • Housing expenses (electricity, water, gas, garbage, etc).
  • School or health insurance, if available.
  • Basic clothing and transportation for necessity (work or studies).

20% for savings

On the other hand, 20% of the distribution is destined to save part of our income. Although a priori it may seem like a measure that does not benefit us, the truth is that it does work.

To do this, he withdraws from the nĂ³mina or 20% of the individual's monthly income, directing it to savings. Hence, we are "forced" to save, and the effort in the future is less. It can also help us to create a savings account in which, in addition to entering our monthly savings (20%), income is generated from the deposit we make.

30% for whims

In this group, expenses are introduced that could be eliminated from our monthly expenses but that suppose whims of the human being. We understand capricious expenses as those that arise in a timely manner and increase the quality of our life.

For example: going out to dinner, going to the movies, buying clothes, etc.

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