Couple calculating their finances

What is the 50/30/20 Budget Rule?

Easy Budgeting Method to Save Money Every Month

Having a hard time budgeting? Want to save some money every month? Determining your budget for a variety of different things can be time-consuming and feel difficult. The 50/30/20 budget rule is an easy way to figure out how much you can afford for necessities, wants, savings, and debts. Here, we will walk you through how you can figure out your budget using the 50/30/20 rule.

What Do the Numbers Mean?

To apply this rule, we must first understand what these numbers mean. Each number represents a certain percentage of your bills, including needs, wants, and debts or savings.

  • 50% for Needs
  • 30% for Wants
  • 20% for Savings and/or Debts

How to Calculate Your Budget with the 50/30/20 Rule

Now that we know what the numbers each apply to, it’s time to separate your needs from your wants and see how much you make every month. Let’s run an example calculation.

Happy couple managing their finances
  1. Let’s assume that you make $3,000 a month. Using the 50/30/20 rule, you should designate half of that number to necessities. In this case, $1,500 should be available for needs such as rent, food, utilities, prescriptions, and gas.
  2. Now, take 30% of your total monthly income to calculate how much you can afford for wants. For this example, 30% of $3,000 is $900. Thus, this person should not exceed $900 that month in any non-essential purchases such as family outings, vacations, game consoles, TVs, restaurant visits, and jewelry.
  3. Finally, the remaining 20% should be dedicated to building your savings account or paying back on debt. Someone making $3,000 a month can expect to put $600 into their savings or into their loans. How you choose to split this amount between your savings and debt is up to you based on your current financial situation.

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As you can see, the idea of this rule is to limit the amount you spend so you can continue to save money month after month. For more financial tips and tricks like this, be sure to check out our blog! Is your budget ready to invest in a different vehicle? Contact us at US Auto Sales and we will help you find the car you need at a price that is affordable to you.