The 50-30-20 rule is a popular personal finance guideline for budgeting, helping individuals allocate their income in a balanced way to ensure financial health and achieve their goals. Here’s how it works:

1. 50% for Needs:

   • This category includes essential expenses that you must pay every month to live and function in society. These are non-negotiable costs such as rent or mortgage, utilities, groceries, transportation, insurance, and minimum debt payments.

2. 30% for Wants:

   • This is for discretionary spending that enhances your lifestyle but isn’t essential. Examples include dining out, entertainment, vacations, subscriptions (like Netflix), shopping for clothes, or any other non-essential purchases that make life enjoyable.

3. 20% for Savings and Debt Repayment:

   • This portion of your income should be allocated toward building your financial future. This includes saving for retirement, building an emergency fund, investing, or paying off high-interest debt.

Why use the 50-30-20 rule?

• Helps with Financial Discipline: By setting clear categories for income distribution, it becomes easier to track and control spending.
• Encourages Savings: Ensuring 20% of income goes towards savings or debt repayment helps you build wealth and work towards financial independence.
• Promotes Balance: The rule ensures that while you’re covering essential needs, you’re also making room for enjoyment and long-term financial goals.

This method is especially useful for people who struggle with budgeting and need a simple, easy-to-follow framework.