The 50/30/20 budget rule is a simple and effective guideline to help you manage your money and achieve financial stability. As the name suggests, it involves dividing your income into three categories: 50% for needs, 30% for wants, and 20% for savings or debt repayment. This rule can be a fantastic framework to help you prioritize and bring awareness to your spending habits.

Firstly, allocate 50% of your income to essential needs. This includes fixed expenses such as rent or mortgage payments, transport, groceries, and utility bills. These are the basics of life and the necessities that you cannot avoid. It is important to be mindful that this category should not exceed 50%, and if it does, it may be beneficial to look for ways to cut down, such as reducing dining out or opting for a cheaper phone plan.

The next 30% is dedicated to your ‘wants’. This includes the more flexible and fun parts of life, such as entertainment, eating out, vacations, and hobbies. It is a good idea to prioritize this category based on what brings you the most happiness and value. For example, if you love going to the theater, allocate funds for that, but perhaps cut down on buying expensive coffee every day.

Finally, the remaining 20% is for savings and debt repayment. This is a crucial step towards financial freedom and security. If you are in debt, use this money to accelerate repayments and become debt-free faster. If your debts are under control, this is a great opportunity to build an emergency fund and save for retirement.