In times of inflation like the one we live in, managing finances and setting a monthly budget can be challenging, but the 50-30-20 strategy can simplify the process.
Senator Elizabeth Warren popularized it in her 2005 book All Your Worth: The Ultimate Lifetime Money Plan (All You Have: The Ultimate Money Plan for Life) The basic rule of thumb is to divide after-tax income and allocate it for spending: 50% on needs, 30% on wants, and 20% on savings.
Here, we briefly describe this easy-to-follow budget plan.
Half of your income should go to the things you need. These include all of your essential costs like rent, mortgage payments, food, utilities, health insurance, debt payments, and car payments.
If these types of expenses represent more than half of your income, you may need to cut costs or use your savings fund.
30% of your salary or income should go to the things you want.
This final category includes everything that is not considered an essential cost, such as travel, digital subscriptions, eating out, shopping and having fun.
It can also include those luxury tastes that you want to give yourself, for example if you buy a better car instead of an economic one.
Ideally, 20% of your income should go to savings and investments. This category includes savings such as an emergency fund and retirement savings and any other investment, such as a brokerage account in the stock market.
