Money management is an important part of everyone’s life; however, there are many who find it difficult. Because of costly lifestyles, emergencies, and other expenses, it becomes tough to maintain one’s financial stability. This is where the 50/30/20 budgeting rule comes in, which is one of the easy ways to manage your money, where your income will be divided into three major parts: needs, wants, and savings.
This rule is flexible and may not be applicable to everyone; however, it can be used as a good starting point to develop money management skills.
What is the 50/30/20 Budgeting Rule?
With the 50/30/20 budgeting rule, your monthly after-tax income is divided into three parts, where 50% goes to needs, 30% to wants, and 20% for savings and financial goals. This budgeting method was popularized by Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan. The rule has gained global popularity because of its simplicity and flexibility.
For example, if your monthly take-home income is NPR 80,000, your budget looks like this:
| Category | Percentage | Amount |
| Needs | 50% | NPR 40,000 |
| Wants | 30% | NPR 24,000 |
| Savings and goals | 20% | NPR 16,000 |
| Total | 100% | NPR 80,000 |
How Does the 50/30/20 Rule Work?
50% for Needs
The needs are those expenditures that are mandatory for day-to-day activities. These include rent, expenditure on food, electricity bill, water bill, travel expenses, basic communication, payment of insurance, etc.
30% for Wants
These are the expenditures that are not necessary but provide quality to your life. For example, eating out, entertainment, shopping, making a subscription, taking up hobbies, vacations, etc., come under this category.
20% for Saving
The remaining 20% goes towards saving. This can be used to build an emergency fund, save for educational purposes, make some big purchases, or whatever financial objective you have set for yourself.
How to Start a 50/30/20 Budget
Calculate Your Monthly Income
The first thing you need to do is determine the amount of money you receive in a month after taxes and deductions.
Keep Track of Your Spending
Note down all your spending, such as rent, buying food, transport expenses, utility bills, repayment of loans, entertainment, and shopping. This will allow you to see where your money is going.
Allocate Your Income in Three Portions
Budget your money using the 50/30/20 budgeting rule:
- 50% – Needs
- 30% – Wants
- 20% – Savings
Set a Savings Goal
Give yourself a reason to save. You may want to save money to build an emergency fund, educate yourself, travel, buy something, or save for another purpose. The goal may help you to save consistently.
Adjust Your Budget
The expenses for the month are not constant; therefore, you should keep track of your budget. If your needs are taking more than 50% of the budget, you can reduce spending on your wants.
Benefits of the 50/30/20 Budget Rule
The budget rule is very popular because of its simplicity and flexibility. This budgeting guideline might help you:
- Understand how your money flows
- Save from unnecessary expenses
- Establish a saving habit
- Create a realistic monthly budget
Manage Your Budget and Savings using Global Smart Plus
With Global IME Bank’s mobile banking Global Smart Plus, managing your budget and savings will be even simpler because of the Personal Finance Management tools such as Budget 360° and Goal-Based Saving.
Budget 360°
Budget 360° will assist in tracking your income and expenditure all in one place. In addition, this tool categorizes your expenditures to give you a clearer understanding of where your money goes.
Regular review of your expenses will allow you to see how close you are to your budget and, therefore, adjust it accordingly when required.
Goal-Based Saving
Goal-Based Saving will assist you in saving money to meet a specific financial goal. You set an amount and a period, after which you start making contributions to reach your goal.
In addition, you can automate your savings so that you do not need to allocate the required amount of money by yourself every single time.
To get started, download the Global Smart Plus App.
Conclusion
The 50/30/20 budgeting system gives you an easy way to divide up your monthly money. The separation of needs, wants, and savings will allow you to manage your expenses in an efficient manner and get closer to achieving your long-term goals.
With the use of budgeting tools like Budget 360° and Goal Based Savings in Global Smart Plus helps manage your spending more effectively and pursue your savings goals.
