Budgeting Template for Notion
The 50/30/20 rule is a simple and effective method for managing your finances and achieving your financial goals.
What is the 50/30/20 rule?
The 50/30/20 rule is a money-saving method that involves allocating certain percentages of your net monthly income to the following three categories: 50% for basic necessities, 30% for disposable income, and 20% for savings and debt payments. It’s an effective way to balance your income, manage your finances, generate savings, avoid wasting money, and reach your financial goals.
Why use the 50/30/20 rule?
Using the 50/30/20 rule as a money-saving method doesn’t mean you must stop enjoying life. Instead, it helps you be smart with your money and identify areas of your monthly budget that can be reduced or eliminated. This way, you can do without non-essential expenses, have savings to fall back on if something unexpected happens, or pay off your debts.
Who came up with the 50/30/20 rule?
The rule was created by Elizabeth Warren, an insolvency expert at Harvard University, and her daughter Amelia as a simple and accessible method for taking control of your finances. It doesn’t require following a complex budget or having a background in economics. Anyone can follow the 50/30/20 rule to build a good level of savings.
How to budget with the 50/30/20 rule
Budgeting is made simple with the 50/30/20 rule, which splits your after-tax income into three categories: needs, wants, and savings or debts.
Spend 50% of your money on needs
To follow this budget, 50% of your after-tax income should be spent on your needs. Needs are payments for essential expenses that are difficult to live without, including monthly rent, electricity and gas bills, transportation, insurance (for healthcare, car, or pets), minimum loan repayments, and basic groceries. For example, if your monthly after-tax income is €2000, €1000 should be allocated to your needs.
Spend 30% of your money on wants
30% of your after-tax income can be used for your wants. Wants are non-essential expenses, such as dining out, clothes shopping, holidays, gym memberships, entertainment subscriptions (Netflix, HBO, Amazon Prime), and groceries (other than the essentials). Using the same example, if your monthly after-tax income is €2000, you can spend €600 for your wants.
Stash 20% of your money for savings
20% of your monthly income should be saved to achieve your savings goals or pay back any outstanding debts. Consistently putting aside 20% of your pay each month can help you build a better savings plan. For example, if you bring home €2000 after tax each month, you could put €400 towards your savings goals. In just a year, you’ll have saved close to €5000!
Following the 50/30/20 rule doesn’t mean not being able to enjoy your life. It simply means being more conscious about your money by finding areas in your budget where you’re needlessly overspending. If you’re confused about whether something is a need or a want, simply ask yourself, “Could I live without this?” If the answer is yes, that’s probably a want.