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Rachel Welch

05 November 2022 174 Read Resources

The 50 30 20 Rule of Budgeting Explained

The 50 30 20 Rule of Budgeting Explaines the importance of tracking your expenses and dividing them into three categories: needs, wants and savings. By following this simple rule, you can reduce the amount of time you spend tracking your finances and focus on the big picture. To create your budget, you should first determine how much after-tax income you have each month. This is the amount of money you spend on your necessities and wants each month, after taxes, including health insurance and retirement contributions.

When creating a budget, it's important to consider all your expenses and decide what can be cut. For example, you may be spending too much money on luxury items such as movie subscriptions or designer clothes. The 50/30/20 rule allows you to keep an extra 20% of your income to use in emergencies or to plan for the future. This money can be used for a down payment on a home or to pay off high interest debt.

It's important to remember that the 50/30/20 Rule is only a guide. You may not be able to keep your fixed expenses at 50% of your income if you live in a high-cost area. In that case, you may need to cut your wants or make drastic changes to your budget.

While the 50/30/20 Rule of Budgeting Explained is a useful guide for most people, you may want to make changes to your budget based on your circumstances. However, the 50/30/20 Rule can help you identify areas of overspending and provide you with a basic framework for your household finances.

Although the 50/30/20 rule is simple to remember, it can be hard to follow. For example, if you are a single adult living in a large city, you may find that you are spending almost all of your income on housing and utilities. You may have a low-paying job or freelance work. The average person living in this scenario will have less than $2250 of disposable income after taxes every month.