The 50%-30%-20% rule is a tool to help one budget their overall financial life by using the after-tax income. 50% should go to needs this include rent or mortgage, groceries, and utilities. 30% should go to your wants, going out to dinner or events, new clothes, Television, ect.. The last 20% should be saved putting towards your retirement or emergency fund to help you meet your financial goals.
Needs
Needs are items that are absolutely necessary for you to live. This includes rent or mortgage, car payments and insurance, health insurance, groceries, and utilities. Depending on where you are in life may add and remove what is considered a need in your eyes. An addition could be life insurance if you have a kid, or another addition may be clothes for your kid.
Managing the cost of your needs where possible could drastically help your financial status with our goals. For groceries, look into off brand items such as frozen vegetables.
Wants
These are considered items or services that you want, for myself streaming services, not needed but I enjoy and want to watch some tv shows and movies. Wants can be a wide category because each person may consider something different a want. When going out shop around for coupons or deals on food options or movie days. An example would be the movie theater where I grew up, we had $5 Tuesdays for a movie.
Savings
The 20% savings can go to investments, emergency fund, retirement account or just preparing for your future goals. As house prices continue to increase it is more and more important to save if you have a goal to buy a house.
Saving for your financial future is something that becomes more and more important for most people as they become older. Starting young to save for your financial future can help you retire or be ready for life changes when needed.
Summary
The 50%-30%-20% rule can be great tool to help you budget your money. This is not a one all be all type of budget, but it will help give a basis to when you are sending too much.
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