What is the 50:30:20 rule that working women can use for savings? (2024)

FAQs

What is the 50:30:20 rule that working women can use for savings? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items.

Some Experts Say the 50/30/20 Is Not a Good Rule at All. “This budget is restrictive and does not take into consideration your values, lifestyle and money goals. For example, 50% for needs is not enough for those in high-cost-of-living areas.

Explanation: In the 50-30-20 rule for budgeting, loan payments are generally categorized under the 'Needs' category.

A 50 30 20 budget divides your monthly income after tax into three clear areas. 50% of your income is used for needs. 30% is spent on any wants. 20% goes towards your savings.

$2,500: 50% of your income, is allocated towards necessities — rent, utilities and groceries. $1,500: 30% of your income, is allocated towards things you want, whether it's the latest iPhone or a fresh outfit. $1,000: 20% of your income, is set aside for saving or for paying off debts.

50-20-30 Rule. A popular savings rule of thumb in which 50% of your income goes towards necessities (groceries, rent, utilities), 20% goes towards savings, debt, and investments, and 30% goes towards flexible spending.

Hopefully, you wouldn't do this, but the way the 50/30/20 budget is set up, it can cause high-income individuals to spend a lot of money on things that they don't need and not save enough for important financial goals.

The 50/30/20 rule is a simplified budgeting method designed to help you better manage your spending while also stowing away funds for the future. The rule originated in a book titled All Your Worth: The Ultimate Lifetime Money Plan, written by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi.

Can you live on $1000 a month after bills? ›

Surviving on $1,000 a month requires careful budgeting, prioritizing essential expenses, and finding ways to save money. Cutting down on housing costs by sharing living spaces or finding affordable options is crucial. Utilizing public transportation or opting for a bike can help save on transportation expenses.

But amid ongoing inflation, the 50/30/20 method no longer feels feasible for families who say they're struggling to make ends meet. Financial experts agree — and some say it may be time to adjust the percentages accordingly, to 60/30/10.

Ready to talk to an expert? Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

50/30/20 explained. The basic idea of the 50/30/20 rule is simple. You allocate 50% of your post-tax income to “needs” and another 30% to “wants.” That leaves you with at least 20% of your net income that you're able to save or use to pay down existing debt.

simplify your spending

A classic rule of thumb is to split your monthly salary as follows: 50% goes into necessities (essential expenses such as rent and bills) 30% goes towards wants (such as food, activities, subscriptions and petrol) 20% goes towards savings or debt repayments.

FAQs about 50/30/20 budgeting

In the "savings" section, you can apply some or all of the 20% you save to your 401(k), IRA or other retirement account. Usually, your employer deducts your 401(k) savings automatically from your paycheck, so you'd factor in those savings from your gross pay vs. your net pay.

The rule requires that you divide after-tax income into two categories: savings and everything else. As long as 20% of your income is used to pay yourself first, you're free to spend the remaining 80% on needs and wants. That's it; no expense categories, no tracking your individual dollars.

Allocate 20% of your take-home pay toward your savings and investment accounts, including your emergency fund and any sinking funds you use for other savings goals. Allocate no more than 10% of your take home pay toward debt management.