What Is The 50 30 20 Budgeting Rule?

Budgeting can seem like a daunting task, but it actually isn’t if you’re determined and persistent. What if there was a simple and effective way to take control of your money? Enter the 50/30/20 Rule , a budgeting method that can help you achieve financial stability and peace of mind.

Here's the gist: The 50/30/20 rule recommends putting 50% of your money towards needs, 30% towards wants and 20% towards savings.

Needs (50%)

Think of your needs as the essentials, the things you can't live comfortably without. Imagine you're making that perfect nasi lemak for breakfast – the rice, the sambal, the egg – those are your needs. Here's what typically falls under Needs:

• Rent or mortgage payments
• Utilities (electricity, water, internet)
• Groceries
• Transportation costs
• Minimum debt payments (e.g., car loan)
• Medical insurance (important to protect yourself from unexpected health costs!)

Without these “needs”, you’re not able to survive. You need to pay rent or you’ll have no place to stay. And with a place to stay, you’d need utilities such as water and electricity to take a hot shower, watch TV, charge your phone etc. Without groceries, what are you going to eat? These are some of the things that you really need to take into consideration when budgeting. Medical insurance falls under the needs category because unexpected medical emergencies can derail your entire budget. Medical insurance acts as a safety net, protecting you from these unforeseen costs such as hospitalisation costs and surgical procedures. Starting from only RM41.85 a month, i-Med provides cashless and hassle-free admissions. Get an instant quote here.

Wants (30%)

Now, let's talk about the fun stuff – your wants! These are the things you enjoy but aren't essential for survival. Remember the delicious rendang you add to your nasi lemak sometimes? That's a want! Here are some examples:

• Dining out
• Entertainment (movies, concerts)
• Gym memberships
• New clothes and gadgets
• Subscriptions (streaming services, magazines)

Do you really need the new gadget? Think about it. If you cannot afford it at this point, then don’t, especially if you already have one that you already can use and isn’t giving you issues. Do you really need that gym membership, or can you utilise public parks for the exercise that you need? These are some of the wants that you need to think about based on the income that you have. Remember, these are wants that you can survive without, not needs that you can’t live without.

Savings (20%)

This is where you build your financial security – your emergency fund, retirement savings, or that dream vacation to Langkawi. Think of it as the wrapping to your nasi lemak that protects it. Here's why saving is important:

• Unexpected expenses (car repairs, medical bills)
• Long-term goals (down payment on a house, children's education, retirement)
• Financial security and peace of mind

Your savings are meant to support your goals. For example, if you plan to buy a house by a certain age, start building your savings so that you can afford it. It’s suggested that you have 6 months of your salary as emergency savings in case unexpected expenses like loss of income occur.

The Power of 50/30/20 for Malaysians

The 50/30/20 Rule isn't a rigid plan; it's a framework you can personalise. Maybe you need to allocate a little more towards groceries or debt repayment – that's okay! The key is to be conscious of where your money goes and prioritise your needs. It is found that many Malaysians still have a short-term mindset in financial management. It would be wise to start the 50/30/20 budget rule as soon as you can so that you have sufficient finances to live with even during difficult times.

By following the 50/30/20 Rule, you can:

• Gain control of your finances: No more wondering where your paycheck went!
• Reduce financial stress: Knowing you're saving for the future provides peace of mind.
• Achieve your financial goals: Whether it's a dream vacation or a comfortable retirement, this rule can help you get there.

Financial stability is a journey, not a destination. Start small, be consistent, and watch your financial well-being flourish, but don’t let medical emergencies derail your financial journey. FWD offers medical insurance in Malaysia that can meet your financial protection needs.