The best way to keep a balanced budget is to decide your financial boundaries before you start spending. The 50/20/30 rule can help you keep every expense properly proportioned.
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As personal finance site Money Ning explains, the 50/20/30 rule is a basic, broad guideline aimed at helping you budget for different financial goals. Here’s how it breaks down:
- Fixed Costs (50 per cent): Everything you have to pay for monthly should fit in half your paycheck, wherever possible. If you earn $3000/mo, don’t live in a place with $2000 rent. Keep rent/mortgage, utilities and recurring bills under that 50 per cent line.
- Financial Goals (20 per cent): This category should be devoted to some form of goal you have. This can include building your savings, paying down debt, building an emergency fund and so on.
- Flexible Spending (30 per cent): This category can include anything that changes month to month. That can mean things like grocery shopping, but it can also include your entertainment budget or your hobbies.
With these three broad buckets, it’s easy to keep a handle on your finances. For example, when you’re shopping for a new place to live, it’s a handy guide to ensuring that your cost of living will be manageable, rather than overwhelming you.
Revisiting the 50/20/30 Budgeting Rule [Money Ning]