All of summer bills add up. Vacations, meetups with friends at the beach bar, social gatherings multiply—and every month a portion of the salary goes toward savings. Not just in the summer season.
If there is a wish for a rainy day fund or plans for buying a home or a car, there are essentials to save. The goal may feel out of reach when looking at a bank statement, but it becomes doable by following a widely recommended rule. The 50-30-20 rule is a simple framework that guiding many people, and here is how it works.
What is the 50-30-20 rule?
This savings method was popularized by Elizabeth Warren, a respected teacher and Harvard professor. In her book All Your Worth: The Ultimate Lifetime Money Plan, she outlines a straightforward approach. The idea is to divide take‑home pay into three categories: half goes to basic expenses, 30 percent to personal costs, and the remaining 20 percent to savings.
Save every month with this simple method splash
Once the payroll is divided into three groups, it may be necessary to precisely define what counts as basic expenses and personal costs. Let’s take a closer look.
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What are the basic expenses?
Under Warren’s rule, 50 percent of income should cover all basic needs. But what qualifies as basic expenses? The Harvard professor includes essentials such as housing and food. Utilities, internet, and mobile phone bills also fit into this category.
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What about personal expenses?
The second portion of the budget is reserved for personal expenditures and includes clothing, gym memberships, leisure activities, and outings with friends among other items.
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Thirty percent of the budget is allocated to these activities. This part often proves the hardest to resist, yet it is possible to keep it under control with mindful choices and planning.
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After basic and personal expenses are covered, the remaining portion goes into savings. This creates a financial cushion that grows over time. When an upcoming holiday arrives or an unexpected expense occurs, the saved money can cover the extra cost with less stress.