The 50/30/20 Rule

The most common mistake people make is spending without a plan.

The 50/30/20 Rule is a simple formula you can follow to manage your money. It calls for you to allocate your money into these three categories:

• Needs (50%): Allocate half of your income to your needs. Your needs are your “must-haves,” like rent and daily transportation.
• Wants (30%): Allocate 30% to your wants. Wants are things that improve your quality of life but are not essential for survival, like that extra sweater you were eyeing or the concert you want to go to. This is the category you cut first when money gets tight.
• Savings (20%): Save 20% of your income and invest it. This is your investment in your future self. Make sure to set money aside for your savings before spending money on your wants.

The 50/30/20 Rule helps ensure your essential needs are met while encouraging you to set money aside and invest for long-term security.