The 50/30/20 Rule to Managing Your Money

You may be wondering what the 50/30/20 rule is.

Imagine a pie…

Before we get into the ‘meat and potato’ of the pie itself, it’s worth pointing out that the idea of this breakdown is to provide input that will lead to understanding about budgeting and where your money is going – and we can do that by using a typical example of what would be an ‘ideal’ personal portfolio.

Now back to the pie…

50% of the pie is set aside for our essentials, bills, mortgage, food etc. With half of our pie left, 30% is eaten up by our ‘personal’ spending, such as the things we don’t need but?want. The remaining 20% represents our goals. This is typically the amount we should be saving, while keeping in mind that we are working with an ‘after tax’ net income.

In terms of the 50% (our needs) and how to determine what that would be – these are basically something that would greatly inconvenience you… or you?literally?cannot live without, such as food and shelter.

The next logical area to look at would be the 30% piece of the pie which is our ‘personal spending’ i.e. the things you don’t need but ‘want.’ This is where most of us tend to blur the line between wants and needs. Some even deny the existence of the line. But it’s there!

The ‘wants’ are something that cause a?minor?inconvenience in your life. It’s not like needs where if you don’t eat, you’ll die – it’s more along the lines of… if I don’t get a brand-new pair of shoes, am I going to die? According to some women the answer is yes. But that’s not even remotely true is it ladies. Simple things like cooking at home rather than eating out can dramatically change this area too. Hobbies are another. Everyone should absolutely have a hobby. Oftentimes they can turn out to be one of the greatest joys of our life.

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