Cheap 101: The 50-30-20 Rule


The basic rule is to divide up after-tax income and allocate it to spend: 50% on needs, 30% on wants, and socking away 20% to savings. It's a simple plan designed to help people reach their financial goals. The rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must-have or must-do. The remaining half should be split up between 20% savings and debt repayment and 30% to everything else that you might want. If your already on a tight budget you may have to change the numbers a bit.

For some people saving 20% of their paycheck would be impossible. For others their wants are what they live for and they may throw caution to the wind when it comes to what their needs are. However, sticking to some type of budget is always better than just spending everything without a clear goal in mind. A goal for retirement, a goal for a house, a goal for a new car, etc..