In this espisódio of the series Destination: Financial Independence! I bring you oldy, but quite recent to me, the 50/30/20 Rule, made popular by Senator Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan.
My first contact with this "Rule" occurred when I attended a free course at Udemy created by the people in charge of the MoneyCoach app. The main argument, with which I do not agree, is that a budget can be very complicated, especially for those who start in the "art" of personal finance management, suggesting as an alternative their app that is based on the 50/30 / 20. They in their right seek to "sell their fish" ... I recognize however that a budget may seem unattractive in the first days or weeks, but it is as complicated or simple as we make it ...

It is quite simply a standard measure for dividing net monthly income into three broad categories - needs, desires, and savings - and assigning each of them 50%, 30%, and 20% of that income respectively. This rule serves, especially for the inexperienced, better critically evaluate their expenses and expenses and rethink the way they manage their money. I will elaborate on this norm and its precepts.

In this first category are included all the expenses necessary for their survival. Look, I said indispensable! We talk about income from home, expenses with water and energy, food, fuel or public transportation expenses so that you can go to work, etc. The essentials for you to survive. This value will correspond to the minimum value necessary to stay alive, without ancillary expenses. No, Netflix, subscription to TVCabo or that sports channel, or even clothing expenses, will be allocated in the following category.

Here, as I said before, all those expenses that probably give you the most pleasure. Restaurants, bars, clothes, video games, internet and cable tv service, gadgets ... Anyway, anything that is not really a necessity. So, knowing that 30% is the limit value for these expenses, it helps to avoid excessive spending, which can lead to indebtedness due to superfluous issues.

And last but not least, 20% of net monthly income should be saved for the future. Of these 20% we must distribute a part to build an emergency fund, a fund to repay debts if they exist, and a fund to invest and so make that money work for us. The weight of each of these subcategories should be appropriate to individual needs.

More than an inflexible rule, the 50/30/20 rule should operate as a guiding principle for the distribution of your personal income by the different types of categories and financial responsibilities. The percentages should vary according to your needs and objectives. And contrary to what the creators of the MoneyCoach app claim, this "rule," much more than an alternative, complements the philosophy of a personal budget. Finally, I invite you to read the @pedrocanella's post on the same subject.