The 50/30/20 rule is a guideline for budget allocation to plan your spending to prepare you for the future and unforeseen circumstances.
Your budget can be categorized into three simple buckets:
- Your necessities (50%)
- Your wants (30%)
- Your savings & investments (20%)
50% of your income goes to your needs. Your necessities are expenses which are important and can’t be avoided. Examples are housing, food, transportation, medication, utility bills. Whatever that you need to survive should be parked under this category.
30% of your income goes to your wants. Differentiating between necessities and wants isn’t always easy. Simply put, your wants are basically anything that you can live without. They can be the money you allocate for shopping, dining out, hobbies, gym subscription, or anything “extra” that is not essential to living. Hint: Your wants typically involve something that you do for fun.
Your Savings & Investments
The balance of 20% is for your savings (including your retirement contributions), investments and paying off your debt. The aim is to create a more comfortable financial cushion in the future.
You can easily automate your savings and investments using the Raiz app by setting up a recurring investment. From the Home screen, click on Invest > Recurring. Simply choose your amount and select a frequency (daily, weekly or monthly).
Note that the percentages in the 50/30/20 are not fixed – they only act as a general guideline to help you with budgeting. You can set your own ratio that works for you to achieve your financial goals!
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