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Budgeting and the 50:30:20 rule
The 50-30-20 rule is a suggested budgeting guideline that advises allocating 50% of your income to necessities (like rent, groceries, and utilities), 30% to discretionary spending (like hobbies, entertainment, and travel), and 20% to savings. The goal is to create a balanced budget that allows you to cover your needs, enjoy life, and save for the future. Created by Sal Khan.
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what can i do to stop buying wants.(10 votes)
Stop carrying cash, debit cards and credit cards. Go out with empty pockets. That will surely curb your enthusiasm for spending.(39 votes)
Great framework, but where do donations and investments figure into this?(12 votes)
Investments can help you get more of your income, because of this it would be considered a need, and a donation would be considered a want because you don’t *NEED* to donate, but it’s a good thing to do.(11 votes)
- is gaming a need(8 votes)
no its not something to die for it could be a thing in the wants section(6 votes)
- What is an alternative to the 50/30/20 rule for me? I usually spend most my paycheck on gas or eating out but usually my paychecks don't last long and by the time I receive my next one I have run out of money.(7 votes)
- Drive less,eat at home, ask your boss for a raise.(10 votes)
Hello! How should I plan a budget as a 17-year-old with a job? I don't make much money, but I'm very lucky as I don't have to pay for college, basic food, and gas (all of which my parents cover). The money I make is basically pocket money for shopping and eating out, but I end up spending a lot and want to save most of it. What is an alternative to the 50/30/20 rule for me?(5 votes)- I was a 17-year-old with a job, in 1968 and 1969. I had no budget and did no saving. I do not recommend living now like I did then.
IF your spending is done online with a credit card, ditch the card. If you withdraw all of your pay from the bank every week and spend until your pockets are empty, then find a way to get the 20% for savings part kept away from you by a trusted friend (perhaps a Sunday school teacher could help). If you have no obligations (because your parents pay for your food, clothing and shelter), feel free to spend (or to burn) the remaining 80%, because your life expenses are covered. Just don't do what I did, spending it all and having nothing to show for it decades later.(10 votes)
Over what period of time are we classifying the 50-30-20 rule to be most effective? I would assume over a month but I just wanted to know if that's correct.(5 votes)
based off the previous video/article- yes, they are doing this based off a month(7 votes)
- i feel like my spending is a kind of addiction at this point, is there anything i can substitute this want to buy things if i were to start saving my money?(4 votes)
- This is the wrong course in which to seek help with an addiction. Contact your local County Mental Health center. They might be able to make a referral.(3 votes)
- what is budgeting(5 votes)
- Budgeting is making a plan for spending, hopefully not spending more than you earn. Plan to pay for the necessary big needed things first, then for smaller needed things, then to donate something to help other people, then to save something. Last of all, use what's left for your entertainment.(3 votes)
- I feel like I have been Bad at saving(4 votes)
- Start again, now. Do better next time.(5 votes)
Is it important to use this rule?(3 votes)
If you want to save and avoid living paycheck to paycheck, yes.
The majority of Americans do not have more than $10,000 in their savings account, and they likely don't have a large sum of money saved for retirement, either.
Most of your income will automatically go towards different expenses, whether it be insurance, food, utilities, or personal health. A substantial portion will be taxed. The rest is at your discretion to choose how to spend.
A good rule of thumb I like to share is to invest 10% of your income into a retirement account and the other 10% into savings (with the sum being 20% in the 50-30-20 rule). In doing so, you can hopefully set up an emergency fund, start saving for vacations or other big treats (like a new car or a house), and what could be many years not needing to work.
Also... depending on the company you're with and how much you choose to invest in your retirement, your savings for retirement could easily add up! Most companies provide a 401(k) and match every dollar you put into retirement (up to a certain amount each year).(6 votes)
Video transcript
- Hi everyone, Sal here and I wanna talk a little
bit about budgeting. So at a very high level, a budget is a way of keeping track of how much
money you're bringing in and how much you are spending. And the reason why you
want to do it is you at the most basic level wanna make sure you're not spending more
than you're bringing in, but even more you wanna make
sure that you're spending it on the things that matter more for you, especially in the long term. So when you set up a budget
and we'll have other videos where we show examples of
this, you're gonna wanna think about the money that you're coming in. So this is often time going
to be from your paycheck. Maybe you have other
sources of money coming in. You wanna think about that money after tax which can be sometimes significant. And then from that, you
wanna think about, well, where's the money going to. Now a lot of folks will talk to you about the 50, 30, 20 rule. And this is, it doesn't have
to be exactly 50, 30, 20 but it's a nice framework to think about which is 50% of the
money that you bring in, maybe you could spend that on your needs. 30% you can spend on your wants and 20% use that for savings. Now, what are needs and wants and actually what qualifies as savings? Well needs are things
that you pretty much need. You need a place to live. You probably need some transportation. You need to eat. So for example, your rent,
that would be a need. Now, you could debate how much of a apartment you might need,
but whatever you're paying for rent is probably a need. Your groceries are a need. If you have to pay, for
example, insurance or lease or you're paying a note on
a car, those are all needs. Now, what are wants? Well these are things that you might like, but you don't need them
necessarily to survive. For example, you need
to do groceries to eat but you don't need to go to
out to eat at a restaurant. That would be a want. And as we know, it's a
lot more expensive to go to a restaurant than to get groceries at the supermarket and cook for yourself. Another want might be you're going to a concert or you're going to a movie or maybe going on vacation
or something like that, that would classify as a want. And then savings, the number one reason why you want it is you want
to put some money aside for a rainy day. You want an emergency fund where if for whatever happens you
had some medical expenses that you didn't expect
happening, or maybe you have to help out a family
member, maybe you have to transition your work
that you have something to live off of. You also wanna put some
money aside if you're saving for a down payment on a
house or you're saving for some other big purchase
or you just wanna save for retirement, it's important
to put that money aside. So think about this 50, 30, 20 rule. Honestly, the more that you can put on the savings side of that, the better. It doesn't have to be only 20% but that gives you a nice framework. So for every $1,000 maybe you bring in after taxes, $500 of that
for needs, $300 of that for wants, $200 of that for savings.