Note that the necessities come in two flavors: routine expenses and predictable goals. Some things you'll pay for regularly and others require you to think ahead and anticipate future needs.
The beauty of the rule is its simplicity.
While the necessities are easy to agree on, wants are subjective and personal. A vacation Jack considers valuable—essential, even—Jill finds frivolous and wasteful. The 50/30/20 rule encourages you to be explicit about your wants. But don't beat yourself up over them. Give yourself permission—within a reasonable set of constraints—to spend some of your money on things that make your life enjoyable.
Examples of wants
- Gym memberships
- Clothing
- Online subscriptions
- Cable TV
- Furniture
- Vacations
- Hobbies
- Eating out
If you squint, you'll see similarities between your wants and needs. Clothing, for example, is a necessity, but spending extra cash for fancy clothes is definitely more frivolous and probably more like a want than a need. This doesn't mean you can't treat yourself with things that are fun or unnecessary, but be honest with yourself while creating your budget to balance your wants and your needs.
Savings
There is no financial habit as important as saving. Unsurprisingly, it's also the hardest. Saving a little each paycheck can make things much easier when unexpected expenses come up. Whether you follow the 50/30/20 rule or not, you should make a goal to save a significant portion of your income for rainy days and retirement.
The former is hard because, with our money, we're optimists. What could go wrong? Retirement, on the other hand, is difficult because it can seem so distant. (Surely I can save for retirement when I get a better job, right?)
Set aside a portion of your income each month in a savings account to create an emergency fund. A savings account will psychologically earmark your money, making it less likely you'll withdraw it for spontaneous reasons. While your rainy day fund may require a little sacrifice now, it can be life saving if you're laid off from work or met with a sudden medical emergency. If disaster strikes, you can easily transfer the funds to a checking account to get you through.
One of the great secrets to saving is finding ways to make it automatic. Don't put yourself in the position of deciding how much to save with each paycheck. Make the savings decision once, and ride it as long as possible.
Some employers, if they support direct deposit, will let you split your paycheck between accounts. This payment method is also a nice way to put money into a savings account automatically.
Finally, some people frown on saving money, calling it unnecessarily severe, or self-depriving. Resist that feeling. Saving is not about amassing a pile of money—it's about security and preparing. Saving is gratifying. It will instill confidence and self-respect. You can make saving less nebulous by giving your savings a purpose. Do you want to buy a home? A new car? Go on a dream vacation? Save for that purpose. This will give you a reason to save, rather than just doing it because you feel like you should.
Make Adjustments
Like all budgeting methods, the 50/30/20 rule is not perfect, and shouldn't be applied as defined to every budget. Saving 20% is a huge improvement for some people. For others it's low. If you're a high income earner, for example, you should consider saving (and investing) much more than 20%, especially if you intend to travel. On the other hand, if you barely make ends meet (which is fine, we all go through it!), consider spending less than 30% on wants. Resist the temptation to compare yourself to others. Make adjustments. Place an emphasis on your long-term goals.
