The 50/30/20 rule is a budgeting rule created as a guideline on how to use your income. It considers your take-home income and splits it in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment.

Needs – 50%

50% of your income should go towards necessities (i.e. needs). Up to half of your money is fixed on the non-negotiable aspects of living which you cannot avoid paying out for, such as mortgage/rent, household bills, and groceries.

Wants – 30%

30% goes towards desirable purchases (i.e. wants). Examples include purchasing a TV, clothing, video games etc.

Savings & Debt Repayment – 20%

20% goes into a savings or debt repayment (either retirement, emergencies, or a particular financial goal). You may opt for more than 20% towards savings, which could benefit you in the long run. But any less, and this may mean a longer saving period towards reaching your financial goals.

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