The “Sound Views” column touches on several important points for handling existing investment assets during times of economic stress – but what if you are still in the accumulation phase of your life? The 50-30-20 Rule is an easily understood budgeting method that can help you determine how your net income should generally be distributed.
- 50% to Needs or essentials include housing expenses such as rent, mortgage, utilities, transportation, and groceries.
- 30% to Wants are typically defined as lifestyle choices such as hobbies, entertainment, and travel.
- 20% to Savings include bank reserves, emergency funds, paying down debt, investments, and retirement accounts.
As the 30% bucket is geared toward your “wants” it is certainly the most attractive category of the three. However, fighting the urge to spend on wants and focusing more on saving will typically make your long-term goals more attainable.
NCG Pro Tip: Consider “50% – 25% – 25%” as an alternative
Our financial lives are all unique, this rule may be slightly different for each person – but the framework can be a helpful guide. You may find that this allows you to take a deeper dive on your current spending habits find opportunities for improved savings tactics, and generally improve your financial health.