Budgeting is an important financial tool that can help you control your spending, save money, and reach your financial goals. A budget can be as simple or as complicated as you want it to be, but it should always be tailored to your unique financial situation. One budgeting template people often use is the 50/20/30 budget rule.
What Is the 50/20/30 Budget Rule?
The 50/20/30 budget rule is a simple way to help you manage your money and stay within your budget. The rule is simple – you allocate 50 per cent of your income towards essential expenses, 20 per cent towards personal savings and debt repayment, and 30 per cent towards discretionary spending.
The 50/20/30 budget rule can really help you stay on track with your finances and avoid overspending. It is a flexible guideline that can be adjusted to fit your unique circumstances. If you are somewhat struggling to make ends meet, you may need to allocate a larger percentage of your income towards essential expenses. On the other hand, if you have a good handle on your finances, you may be able to allocate a larger percentage towards savings and debt repayment.
No matter what your circumstances are, the 50/20/30 budget rule can be a helpful tool in managing your money.
Essential Expenses (50 Per Cent)
Essential expenses are basically those that are necessary for you to maintain your standard of living. They include items like food, shelter, clothing, and transportation.
In many cases, essential expenses are also fixed costs, which means they don’t fluctuate month-to-month. This can make budgeting for them a bit easier, as you can more accurately predict how much you’ll need to spend.
Of course, everyone’s definition of “essential” will be different. A single person with no children may have very different essential expenses than a family of four.
To get a better sense of what your essential expenses are, start by making a list of all your regular monthly expenses. Then, identify which of those items you could not live without.
Savings (20 Per Cent)
According to the 50/20/30 budget rule, 20 per cent of your income should be dedicated to savings.
This includes putting money away for long-term financial goals, like buying a house or saving for retirement. It also includes building up an emergency fund in case of unexpected expenses.
If you’re not sure where to start, consider opening a high-interest savings account and setting up automatic transfers from your chequing account each month. You may also want to talk to a financial advisor to get started on a savings plan.
Wants (30 Per Cent)
After putting away your needs and savings, you can spend the rest on your wants. This includes things like travel, restaurants, entertainment and other non-essential items.
If you want to stick to your budget, it’s important to be mindful of your spending in this category. Make sure you track your spending and only spend what you can afford.
If you find yourself overspending in this category, try setting a monthly budget for your discretionary spending. This can help you stay on track and avoid overspending.
Final Thoughts
The 50/20/30 budget rule is a simple way to budget your money and make sure you’re spending within your means. If you follow this rule, you’ll ensure that your essential expenses are covered, and you’re putting money away for your long-term financial goals. You’ll also have some money left over to spend on your wants.
Get more budget advice from New Wave Financial Planning. Combining technology with experience, we can take the stress out of your budget and cash flow management and put you in control of your finances. Get in touch with us today!
