How the 50/30/20 budgeting method works

Here is how the 50/30/20 budgeting method works.

The 50/30/20 budgeting method is a simple way of budgeting which helps you control your spending.

The 50% goes into your monthly basic needs, the 30% goes into your personal spending or wants and the remaining 20% should go into your savings.


Here is how the 50/30/20 budgeting method works.

1. Calculate your after-tax income

After-tax income is what is left of your salary when you take out all your tax from your monthly income.

With a regular monthly salary, calculating your after-tax income should be easy.

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For someone who is self-employed, your after-income tax would be deducted after you have removed your business expenses from your gross income.

Then removing all the tax you have to pay, from what is left from your income.

2. Budget 50 percent for your basic needs

After calculating your after-tax income, you take fifty percent out of your monthly income and budget it for your basic needs.

Your basic needs are the essentials things you cannot do without like food, household items, housing.

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Budgeting for your needs should not exceed 50 percent. You should find a way to work around the 50 percent.

3. Your personal spending should not exceed 30 percent

This is why it is important to know the difference between wants and needs.

Your needs are more important than your wants. So you need to budget less for your personal spending.

Allocate 30 percent for your wants. It might look difficult trying to spend just 30 percent of your income on your personal needs, making you feel tempted to spend more.

But if you want your 50/30/20 budgeting method to work you need to spend within this range.

4. The rest of your income should go into savings

The rest of your income which is 20 percent should go into your monthly savings.

Doing this will help you grow your savings monthly.

5. Follow through with it

To make the 50/30/20 budgeting method work well for you, you need to follow through and stick to it.

This shouldn’t only be once in a while, you need to stick to it monthly.

Source: Pulse. Ng