Budget With the 50/30/20 Rule

Real talk, everyone needs to budget. Then again, how should you budget? Today, we’re going to talk about the 50/30/20 rule.

This rule basically helps you divvy up your net income (after taxes and deductions) and allocate your monthly budget accordingly; 50% – Needs, 30% – Wants, 20% – Savings

Before you begin, you need to identify your net income. Here is an example of how to calculate your net income:

Total Gross Income: RM 6,000

EPF Deductions: RM 660

SOCSO Deductions: RM 24.75

EIS Deductions: RM 9.90

Total net income: RM 5057.85

Now let’s break it down.

Budgeting for Needs – 50% 🔓

50% of your net income should cover your needs which are expenses you cannot run away from. Some examples include utilities, loans, and annual expenditures such as taxes and insurance. 

Tip: You should set aside monthly savings for your annual expenses to avoid the stress of coughing up a large sum at the last minute.  

The goal is to keep your needs under 50% of your net income. 

Total net income: RM 5,058

50% for needs: RM 2,529

So your needs need to amount to RM 2,529 or less. If you are spending more than that, you are definitely overspending. 

You can opt for cheaper insurance premiums, or a cheaper car or home. Find ways to cut your costs and focus on living within your means. 

Budgeting for Wants – 30% 🛍

Wants are the non-necessary expenditures such as  Netflix, dining out, bubble tea, gym membership, and a staycation budget, all of these things fall into the wants category.

So following the income calculation from earlier…

30% of your net income for Wants:

RM 1,517

Go ahead, and check your receipts and transactions from last month, did you overspend? If not, great you have more wiggle room. If you did, find places to cut costs. Maybe limit yourself to one bubble tea a week, it’s healthier, trust us.

Budgeting for Savings – 20% 💰

Now, this 20% for savings is super important.

Following our earlier example:

20% of net income for Savings:

RM 1,012

This amount of 20% is what you will need to put away, in a place far away from your shopaholic tendencies and spending habits. Use the 20% to start an emergency fund and your financial goals. Transfer your savings to a separate savings account or better yet, use Versa Cash.

Versa Cash is a low-risk money market fund that gives you stable returns and it’s flexible enough for you to withdraw anytime without penalties, in case of an emergency. 

In conclusion,

The 50/30/20 rule is a super simple, very easy way to budget, especially for young earners new to employment. In any case, breaking down your spending will help you see how much and where you can improve your financial status.

We hope you found this guide helpful and that you’re now one step closer to achieving financial success.