50‑30-20 rule: A practical approach to household budgeting

Managing a household budget can be challenging, especially for those who lack experience in this area. Without an appropriate plan and strategy, it is difficult to save independently and manage your finances effectively. It turns out that the 50-30-20 rule helps you manage your money effectively.

The key element of this method is intelligent income management. The 50-30-20 rule involves dividing expenses into three main categories, which are expressed in percentages:

    
• 50% of income should be allocated to cover basic, essential expenses, such as bills, groceries, or fixed fees;
• 30% can be spent on personal expenses and entertainment, including trips, clothes shopping, cosmetics, or additional activities;
• 20% should be saved, either for an important goal or as a safeguard when unexpected expenses arise.

The first step is to determine your monthly net income. Then, divide this amount according to the percentage guidelines of the 50-30-20 rule. If math is not your strong suit, a calculator will be helpful.

After calculating 50% of your income, allocate this amount to current expenses. Next, calculate 30% of your income and allocate this amount to more minor expenses and pleasures. Finally, set aside 20% of your income for savings.

However, remember that this method should be adapted to your needs and financial capabilities. If, for example, current expenses exceed 50% of your income, you can increase this percentage to 60% and accordingly decrease the other categories. Similarly, if you are planning a larger investment and need more savings, you can increase the savings percentage to 40%.

The 50-30-20 rule has gained popularity thanks to its simplicity and effectiveness. It does not require specialist financial knowledge, and its application is possible for anyone who wants to manage their budget better. An additional advantage of this method is its flexibility. It can be adapted to individual needs and financial capabilities.