In his book, Wealthing like Rabbits, Robert Brown states that living within our means is key to a successful financial future. We have a rule that we preach here at Cashco and we think it’s going to help you a lot with your own balancing act. We call it the 50/30/20 Rule.
The 50/30/20 Rule Explained
The 50/30/20 Rule is a simple guideline to help you understand how to manage your take-home earnings. The beautiful thing about the 50/30/20 Rule is that it covers all bases. This rule will make sure you’re paying all your bills, saving for future you, AND splurging on yourself (just a little bit).
You should be dividing up your monthly earnings (after tax) by the following:
50% for needs
30% for wants
20% for savings
Understanding Each Category
A big part of budgeting is fully understanding and being realistic about each category. Let’s go back to the fundamentals:
Needs: These are the basics of life. Needs include your rent or mortgage payments, gas and electricity, medication, and insurance. This also includes minimum debt repayments.
Wants: These are the things we don’t need, but they add zest to life. Wants include SkipTheDishes, puzzles and LEGO, or really anything considered entertainment (believe it or not, Netflix is not a need).
Savings: This is the category for our security and our future, beyond the minimum debt repayments in your life. Savings include an emergency fund, your RRSP and/or TFSA, and RESPs for your children. However, any DEBT repayments can count towards this category! That includes student loans or a line of credit.
Make sure you understand these categories. We tend to overspend on our wants, or we categorize them incorrectly as needs. Often this overspending on wants cuts into the 20% we should be putting away for our savings.
A Rule… With Flexibility
You may find that you’re not following this rule perfectly—that’s okay! The 50/30/20 rule is a guide meant to help you achieve the balance our author was talking about.
Real life is messy, and sometimes our budget needs to be flexible (that’s why we want you to have a surplus every month).
Get your copy of Wealthing Like Rabbits
Learn more about living within your means by reading Wealthing like Rabbits! We’ll give you a complimentary special edition when you sign up to be a member of The Village!