What is a 50-30-20 budgeting plan?

Publish Date: in Finance101

What is a 50-30-20 budgeting plan?

A new budgeting plan will help you with your salary

If you want to get a handle on your income and spending to either budget in general or save for a specific goal there are many ways to go about it. The easiest way to start is the 50-30-20 rule whereby you divide your income accordingly.

 

50% Major Obligations

 

The first 50% of your income is directed towards paying off major obligations such as:

 

  • Rent
  • Utilities
  • Major Installments (loans, credit cards, etc.)
  • Groceries

 

This allows you to prioritize your major expenditures and if you are off-budget then you can still meet them

 

That budget works whether you have a fixed or variable income (i.e. it changes monthly)

 

20% Savings

 

The second 20% should be directed towards a savings plan with which you can save for major future purposes like a TV, trip, car or even a downpayment on a house

 

30% Discretionary Spending

 

This is the amount that's leftover, hopefully, it's 30% but if it's less you should stick to the smaller %. This is what you spend on eating out, shopping, and all the other little luxuries in life that are not necessary. 

 

The main benefits of the 50-30-20 method are:

 

  • It works whether you have a fixed or variable income (i.e. it changes monthly)
  • It’s easy to use and adjust (50-30-20 are not set in stone but are a general guideline)
  • It will make you aware of your spending habits and where you can save

 

The most important thing in starting is having the will and determination. Even if you go off plan one month, that's ok, get right back on track the next one.