Want to create your own budget but not sure where to start? Find out how you can simplify this process by using the 50/30/20 rule.

The concept of a budget goes far beyond paying your bills on time. It should also help you identify your priorities and how much you spend on each category.  

The 50/30/20 rule can serve as a guide when devising a budget and aligning it with your financial goals.

While the budget with envelope system splits your monthly or weekly budget into different paper envelopes, the 50 30 20 rule consists of dividing your expenses into three categories:

Spend 50% On basic needs

A basic need is any expense or payment vital to daily operation, and the elimination of which has a significant negative impact.

This category includes:

• Groceries
• Transport
• Water
• Electricity
• Gas
• Rent

Initially, your basic needs may exceed 50% of your income. This is understandable, especially when you are still learning to put together a balanced budget and know your financial reality. Remember, the 50/30/20 rule is just a parameter – you can make adjustments based on your current situation. The idea is that, gradually, you can reduce expenses under this category so that they do not exceed 50% of your income.

Spend 30% on personal wishes

The 30% category is the one in which most people will find the most value. It’s where the fun is, and by taking care of your fixed expenses and financial priorities beforehand, you can use this category in any way you want.

Think of this category as your spending fund:

• Eating out.
• Going to the movies with friends.
• Buying clothes.
• Doing Christmas shopping … all of the above fall under this category.

This may seem like an excessive and unnecessary expense to some. They are, however, an essential part of our lives. These are activities that lighten our daily routine and allow us to spend time with family and friends.

However, be careful, it can be the cause of your finances spiraling out of control! It is important to avoid getting carried away with luxury items that are out of line with your standard of living or to prove your status to others.

Spend 20% on savings and debts

The remaining 20 per cent of income goes to savings. This includes savings to meet short-term and long-term goals. It can also include paying off debts other than a home mortgage, which should be considered part of “necessities.” Once you receive your monthly income, set aside 20% for this category.

And, also, maybe you are young and do not think about it yet, but when you are older, you will be grateful for having saved good money using this method.

In conclusion

The 50/20/30 rule is a great starting point for those who need a bit of structure when it comes to keeping their money organized and controlling how much to spend in a given category. The Moneyspire app is a tool to help you with this budgeting system. It is the best software for managing your money, and is used by thousands of people all over the world—Join them now and get your personal finances in order.