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The 50-30-20 Rule : How to Budget and Invest in your Twenties

Thalia Gomez

How much should you be investing?

This is a common question every beginner asks themselves, and that’s where the 50/30/20 rule comes in. The 50/30/20 rule makes saving easy, realistic, and applicable. This rule tells you exactly how much you should be budgeting for your living costs and savings on a monthly basis.

50/30/20 Rule Breakdown

How to use the 50/30/30 Rule

This rule budgets your monthly income (after-tax) into 3 different categories. These include your needs, wants, and savings. It is an indication of what percentage of your income you should be spending on each category.

50%: Needs

The 50 in the rule represents spending 50% of your monthly income on your living costs, also called your needs.

These “needs” are the expenses you need to survive.They include rent, groceries, insurances, transportation, gas/electricity/water bills, and minimum loan/debt repayments.

For example, if your income per month after tax deductions is $2000, you should budget to spend $1000 on needs.

30%: Wants

The rule suggests that you budget to spend 30% of your monthly income on your wants. These can include shopping, eating out at restaurants, subscriptions such as Netflix or Disney Plus, vacations, etc.

This rule is easy to follow because while it does limit how much you spend on different things; it does not completely restrict you from treating yourself with wants.

For example, if your income per month after tax deductions is $2000, you should budget to spend 30% on your wants. Therefore, when using this rule you should be spending $600 on wants.  

20%: Savings

The 20% of the rule is budgeted for savings. This 50/30/20 rule allocates budgeting 20% of your monthly income towards savings such as investments, emergency fund, or extra debt repayments.

For example, using your $2000 income and this rule, you can budget for $400 for saving/investing.

(i) Disclaimer

The Content is for informational purposes only, you should not consider any such information or other material as investment, financial, or other advice. Nothing contained on our Site constitutes a solicitation, recommendation, endorsement, or offer by Alinea Invest or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction. When investing your capital is at risk. 

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