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).