The Golden Rule 50/20/30 – how to make budgeting your personal finances easy as child’s play

| Reading Time: 3 Min


There are many rules for family budgeting, but one of the fundamental ones is the 50/30/20 rule.

It is a quick and straightforward way to calculate needs versus wants and where the money from our monthly income goes.

What is the 50/20/30 rule?

The 50/20/30 rule is about dividing your spending habits into percentages and keeping goals tied to those numbers.

Each category gets a certain percentage of your income allocated to it.
50% for necessities such as housing, utilities, food and transportation
30% for discretionary spending such as entertainment, dining out and hobbies.
20% for savings and debt repayment
Each category is relatively flexible, depending on the needs of you or your family.

1. Basic expenses (50%)

Everyone needs necessities to survive. For example, food, water, shelter, and heat fall into this particular category, which should contain only expenses essential to our existence.
Transportation costs can also be included in this group, given the need to be able to travel in order to not only receive our salary, but also to acquire our basic needs.

The 50% of our monthly income that we receive should also be allocated to this set of needs.


2. Financial expenses (20%)

20% for savings and debt repayment . These payments should be directed not only towards planning for future budgets but also towards taking care of present ones. Include the repayment of accumulated debts such as credit card bills and student loans.


If there are no debts to repay, this is where we make contributions to savings or pension funds; however, this is if we have decided to manage and maintain them. At the same time, 20% of the income we receive should be set aside for this type of expenditure.

3. Entertainment expenses (30%)

Our most favorite expense! But this fun can sometimes spill over onto your other obligations and bills, and this is where these kinds of budgeting practices can interfere.

These expenses are related to personal lifestyle and entertainment choices. They can include spending on new shoes, eating out at restaurants, and vacationing in Hawaii. However, our internet, cable TV and phone bills are also included in this portion. So 30% of our paycheck should be reserved for these transactions.

How do we get started?
To accurately calculate the 50/20/30 plan, we first need to accurately calculate our salary.
After-tax income is defined as the amount of salary we actually receive after money for state taxes, Social Security, Medicare, and local taxes are subtracted from it. If we are self-employed, this number is our gross income less taxes and business expenses.

As you can see, there’s a bit of leeway on the percentages. It can be almost impossible to hit 50%, 30% and 20% on your fingers. But that doesn’t mean you shouldn’t try.

Maddie was able to follow her goals pretty strictly and continue to pay off her student loans while saving for future expenses as well as retirement.

Meanwhile, Annalise and Austin were able to keep their spending down and did an excellent job of limiting spending on entertainment and necessities while focusing primarily on contributions to various savings funds.

Customizing the 50/20/30 rule

Budgeting 50/20/30 may look a little different for us than it does for our neighbor. We should keep in mind that while this is a good rule to follow in general, it will not meet all needs.

How to make the 50/20/30 rule work for everyone

In some situations, the 50/20/30 rule may need to be recalculated one way or the other. . Without budgets, spending can get out of control or, conversely, become overly conservative.
Creating a plan for your needs and planning how to meet them is an excellent way to gain control over our financial well-being. This benefits not only us, but those around us.
Therefore, knowing exactly what you need and exactly how you are going to meet it means relieving anxiety and stress, which are serious negative factors in a less satisfied and happier life.


Step by step

The first step in waging war against bad spending, however, lies solely in the decision to do something about our budget. It is important to step back and realize that it is possible to hold the reins on our spending, and even more possible to beat negative spending habits and replace them with positive ones

For all your finance related questions, we at TPA Bulgaria are always here to help:

TPA Bulgaria
+359 2 981 66 45/46/47