How to apply the 50/30/20 rule to organize your salary
💡 Quick Tip
The 50/30/20 rule is a very simple and effective budgeting method. It consists of dividing your monthly net income into three categories: 50% for basic needs, 30% for wants or lifestyle, and 20% for savings or debt repayment. It is ideal to start controlling your finances without obsessive tracking.
What is the 50/30/20 rule?
Popularized by Elizabeth Warren, this rule is the perfect starting point for financial intelligence.
1. 50% for Needs (The essentials)
Half of your income should cover your mandatory and essential living expenses. If this percentage exceeds 50%, you should consider reducing expenses or increasing your income.
- Rent or Mortgage.
- Utility bills (electricity, water, internet).
- Basic groceries.
- Indispensable transportation.
2. 30% for Wants (Lifestyle)
Not everything is about saving. This portion is destined for what you want, not what you strictly need. It is the key to making the budget sustainable in the long term so you do not get frustrated.
- Dinners at restaurants.
- Subscriptions (Netflix, Spotify).
- Clothing and entertainment.
3. 20% for Savings and Investing (Your future)
This is the part that will make you grow financially. As soon as you receive your paycheck, this 20% should go straight to another account.
- Creating an emergency fund.
- Contributions to index funds or the stock market.
- Early repayment of dangerous debts.
📊 Practical Example
Let us imagine that your monthly net salary (what is deposited in your bank after taxes) is $1,500.
Applying the rule strictly, your monthly budget would look like this:
- Needs (50%): $750. This is your limit to pay rent, electricity, water, and fill the fridge.
- Wants (30%): $450. You have this money available to spend on leisure, clothes, or dining out without feeling guilty, because you have already covered your obligations.
- Savings (20%): $300. This money is automatically transferred to your savings account on the 1st of every month.
After a year, you will have saved $3,600 automatically while maintaining a balanced lifestyle.
