The 50/30/20 budget is a budgeting method that allocates your income into three categories: needs, wants, and savings. The breakdown is as follows:
- Needs: 50% of your income should be allocated towards your basic needs, such as housing, food, transportation, and healthcare. These are the necessary expenses that you must pay in order to live.
- Wants: 30% of your income should be allocated towards your wants, such as entertainment, dining out, and shopping. These are expenses that you can live without, but they make life more enjoyable.
- Savings: 20% of your income should be allocated towards savings, such as an emergency fund, retirement, and any other long-term financial goals. Additionally, this category is used for paying off debt, once proper savings goals have been met.
The best part about this form of budgeting (50/30/20 budget) is that it is very simple. Since needs and wants are very easy to identify, it makes it easy to separate the categories in order to ensure that the budget is laid out correctly. A spreadsheet or budgeting app can be used to see if a category in the 50/30/20 Budget is being overspent. You can also use the envelope system in conjunction to eliminate the need for complicated tracking systems.