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LESSON #2
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The 50/30/20 Rule of Thumb for Budgeting
The 50/30/20 rule of thumb is a way to allocate your budget according to three categories: needs, wants, and financial goals. It’s not a hard-and-fast rule but rather a rough guideline to help you build a financially sound budget
To better understand how to apply the rule, we’ll look at its background, how it works, and its limitations, plus go through an example. In other words, we’ll show you how and why to set up a budget using the 50/30/20 rule of thumb yourself.
The 50/30/20 rule of thumb is
a set of easy guidelines for how
to plan your budget

What Is the 50/30/20
Rule of Thumb?
Rule of thumb refers to an
approximate method for doing
something, based on practical
experience rather than theory
Using that guidelines, you allocate your after-tax income to the following categories:
Rule of thumb refers to an
approximate method for doing something, based on practical experience rather than theory
To Needs
Needs are what you can’t live without, or at
least very easily. They include things like:
To Wants
Wants are what you desire but don’t
actually need to survive.
They might include:

To Financial Goals
This category covers two
main areas:

Because this is just a guideline
for planning your budget, you’ll
need to supplement it with something
to monitor spending, such as
a budget tracker or a simple Excel sheet.
You can then set the 50/30/20
percentages as targets within
whichever budget tracker you prefer

How to Use the 50/30/20
Rule of Thumb for Budgeting
Most people save too little, and unknowingly spend too much. The 50/30/20 rule of thumb
is a way to become aware of your financial habits and limit overspending and under-saving. By spending less on the things that don’t matter that much to you, you can save more for the things that do

Also chek out 4% rule video
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Needs are what you can’t live without, or at least very easily. They include things like:
Because this is just a guideline for planning your budget, you’ll need to supplement it with something to monitor spending, such as a budget tracker or a simple Excel sheet. You can then set the 50/30/20 percentages as targets within whichever budget tracker you prefer

How to Use the 50/30/20
Rule of Thumb
for Budgeting
Rent
Groceries
Utilities
Hobbies
Vacations
Dining out
Entertaiment
All savings
Debt payments