Best Financial rule of thumb – The 50-20-30 budget rule

Best Financial rule of thumb – The 50-20-30 budget rule

The United States Senator Elizabeth Warren coined the 50/20/30 rule for income allocation. The basic idea of this rule is to put the disposable income of individuals to judicious use.

The rule states that after the deduction of taxes from the income, 50% of the amount should be spent to fulfil the NEEDS, 30% for satisfying the WANTS. Not to mention, rest 20% should be SAVED by the individual.

Needs

These are the expenses that are necessary for human survival. Such expenses include rent, medical expenses, groceries etc.


In addition, this category does not include any expenses that are dispensable or superfluous.

Wants

These are the expenses that can also be dispensed out and are not absolutely necessary. They may include eating out, Netflix subscription or high-speed internet.

Furthermore, They also include an up gradation to the needs of an individual, for example, choosing to eat costlier food instead of the less expensive one. Savings The last but most important part of your budget is saving. This includes making a contingency fund in your bank account, investing in mutual funds or in the stock market.

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