If you are debt-free or your only debt is a low-interest mortgage, you may want to devote the full 20% of your net income to savings. Savings can include retirement contributions, an emergency fund, or a goal like homeownership or travel. The 50/30/20 plan prioritizes savings and debt reduction, but the breakdown of savings or debt payments will depend on your personal circumstances. You definitely need clothes, but you may opt to buy a special outfit or a more expensive brand. While you may need a cell phone, getting the newest device or paying for a premium plan may be a want. While 30% may seem extravagant, the wants category is usually doing some double duty by including any upgrades you may wish to make in your needs section. Whether it’s self-care or eating out, including some fun in your budget may make you more likely to stick to it. Wants are often called nonessentials, but these expenses allow you to personalize your budget. Can you find ways to drive less often to reduce your fuel costs?.Could shopping at a different grocery store save you money?.Can you move to a cheaper location or add a roommate?.If your budget is tight, consider the options you have to trim your necessary expenses: A single parent may consider their life insurance premium to be an essential cost, while a person with no children may not. Some people can use public transportation, but others may need a personal vehicle. While these needs may seem clear-cut, there’s still a significant amount of personal interpretation within this category. These include housing, utilities, food, transportation, healthcare and childcare. Needs are expenses that are necessary for survival and basic well-being. The rule was comprehensively covered by then-professor (now senator) Elizabeth Warren and her daughter, Amelia Warren Tyagi, in their book “All Your Worth: The Ultimate Lifetime Money Plan.” 50% - Needs
The 50/30/20 rule is a budgeting technique that involves dividing your money into three primary categories based on your after-tax income (i.e., your take-home pay): 50% to needs, 30% to wants and 20% to savings and debt payments.
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