What is the 50 30 20 rule for investing?
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
The basic idea of the 50/30/20 rule is simple. You allocate 50% of your post-tax income to “needs” and another 30% to “wants.” That leaves you with at least 20% of your net income that you're able to save or use to pay down existing debt.
The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.
Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.
Alternatives to the 50/30/20 budget method
For example, like the 50/30/20 rule, the 70/20/10 rule also divides your after-tax income into three categories but differently: 70% for monthly spending (including necessities), 20% for savings and for 10% donations and debt repayment above the minimums.
Drawbacks of the 50/30/20 rule: Lacks detail. May not help individuals isolate specific areas of overspending. Doesn't fit everyone's needs, particularly those with aggressive savings or debt-repayment goals.
Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000. 30% for wants and discretionary spending = $1,500.
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
The rule requires that you divide after-tax income into two categories: savings and everything else. So long as 20% of your income is used to pay yourself first, you're free to spend the remaining 80% on needs and wants. That's it. No expense categories.
Key Takeaways
With the 80/20 rule of thumb for budgeting, you put 20% of your take-home pay into savings. The remaining 80% is for spending. It's a simplified version of the 50/30/20 rule of thumb, which allocates 50% of your take-home pay to needs, 30% to wants, and 20% to saving.
Is 4000 a month enough to live on?
The answer is yes, almost 1 in 3 retirees today are spending between $2,000 and $3,999 per month, implying that $4,000 is a good monthly income for a retiree.
On a $60,000 salary, which roughly translates to $50,000 after taxes (depending on your location and tax rates), 60% would be about $30,000 per year, or $2,500 per month. Savings (20%): This portion should be allocated towards your savings, investments, emergency funds, or debt repayment.
It would be possible but it wouldn't be fun and it could be difficult to be healthy. $100 a month is about $3.30 per day, or $1.10 per meal for 3 meals a day.
But amid ongoing inflation, the 50/30/20 method no longer feels feasible for families who say they're struggling to make ends meet. Financial experts agree — and some say it may be time to adjust the percentages accordingly, to 60/30/10.
The 50/30/20 has worked for some people — especially in past years when the cost of living was lower — but it's especially unfeasible for low-income Americans and people who live in expensive cities like San Francisco or New York. There, it's next to impossible to find a rent or mortgage at half your take-home salary.
It may not work for everyone. Depending on your income and expenses, the 50/30/20 rule may not be realistic for your individual financial situation. You may need to allocate a higher percentage to necessities or a lower percentage to wants in order to make ends meet. It doesn't account for irregular expenses.
The 50/30/20 rule can be a good budgeting method for some, but it may not work for your unique monthly expenses. Depending on your income and where you live, earmarking 50% of your income for your needs may not be enough.
50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).
What is a 'pay yourself first' budget? The "pay yourself first" method has you put a portion of your paycheck into your savings, retirement, emergency or other goal-based savings accounts before you do anything else with it. After a month or two, you likely won't even notice this sum is "gone" from your budget.
Studies have shown that the impact of our annual income on our overall happiness isn't exponential for everyone. In fact, it plateaus around $100,000 for most people, which means a lower return on your happiness for every dollar you make beyond that point.
How much money do I need to retire?
10x your annual salary by 67
To fund an “above average” retirement lifestyle—where you spend 55% of your preretirement income—Fidelity recommends having 12 times your income saved at age 67, which is the normal Social Security retirement age.
Fidelity Investments recommends saving 1x your salary by 30. At the end of 2021, the average annual salary was $49,920 for 25 to 34-year-olds and $58,604 for 35 to 44-year-olds. So the average 30-year-old should have $50,000 to $60,000 saved by Fidelity's standards.
Oh My Dollar! From the radio vaults, we bring you a short episode about the #1 most important thing in your budget: your values. You can't avoid looking at your budget without considering your values – no one else's budget will work for you.
But you should also note that other experts recommend “the 36% rule,” which states that your debt-to-income ratio should never pass 36%. The golden ratio budget echoes the more widely known 50-30-20 budget that recommends spending 50% of your income on needs, 30% on wants and 20% on savings and debt.
Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.
References
- https://www.investopedia.com/terms/h/hedgefund.asp
- https://mergersandinquisitions.com/how-to-start-a-hedge-fund/
- https://www.citizensbank.com/learning/50-30-20-budget.aspx
- https://www.streetofwalls.com/articles/hedge-fund/learn-the-basics/how-do-hedge-funds-make-money/
- https://www.fool.com/knowledge-center/what-is-the-correct-way-to-calculate-gross-leverag.aspx
- https://www.experian.com/blogs/ask-experian/what-is-the-20-10-rule/
- https://www.riaintel.com/article/2aucrzsa72lr93xz8ghds/investments/the-most-consistently-profitable-hedge-funds-continue-to-prove-their-edge
- https://www.investopedia.com/articles/financialcareers/08/hedge-fund-career.asp
- https://www.investopedia.com/terms/1/80-20-rule.asp
- https://www.forbes.com/advisor/investing/how-to-invest-in-hedge-funds/
- https://mergersandinquisitions.com/hedge-funds/
- https://www.investopedia.com/terms/p/paretoprinciple.asp
- https://www.investopedia.com/articles/professionals/112515/day-life-hedge-fund-manager.asp
- https://www.wsj.com/buyside/personal-finance/how-much-do-i-need-to-retire-f3275fa7
- https://www.self.inc/blog/how-much-money-should-I-save-by-30
- https://www.linkedin.com/pulse/forex-brokers-high-leverage-accept-us-clients-develop-business-vcwpc
- https://www.lifeskillsthatmatter.com/blog/how-much-money-you-need
- https://www.investopedia.com/terms/m/maximum-leverage.asp
- https://www.morpher.com/blog/100x-leverage
- https://www.sec.gov/files/ib_hedgefunds.pdf
- https://www.thelangelfirm.com/debt-collection-defense-blog/2018/august/100-examples-of-the-80-20-rule/
- https://www.cnbc.com/2024/01/23/worlds-largest-hedge-funds-record-bumper-year-of-profits.html
- https://www.investopedia.com/articles/mutualfund/07/private_equity.asp
- https://economictimes.indiatimes.com/definition/leverage
- https://time.com/personal-finance/article/50-30-20-rule/
- https://www.blackrock.com/us/individual/literature/fact-sheet/sma-target-allocation-80-20-etf-factsheet.pdf
- https://www.investopedia.com/terms/h/hedge-fund-manager.asp
- https://milkroad.com/exchanges/margin-trading/
- https://www.forbes.com/advisor/banking/guide-to-50-30-20-budget/
- https://www.fidelity.com/learning-center/investment-products/closed-end-funds/leverage
- https://www.linkedin.com/pulse/what-leverage-forex-beginners-trader-forex
- https://www.bajajfinserv.in/investments/80-20-rule-what-is-it-how-it-works
- https://www.unfcu.org/financial-wellness/50-30-20-rule/
- https://www.forbes.com/profile/ken-griffin/
- https://www.investopedia.com/articles/personal-finance/121815/buffetts-9010-asset-allocation-sound.asp
- https://www.thebalancemoney.com/dont-like-tracking-expenses-try-the-80-20-budget-453602
- https://finance.yahoo.com/news/70-20-10-rule-redux-024608152.html
- https://www.sofi.com/learn/content/70-20-10-rule/
- https://finance.yahoo.com/news/grant-cardone-swears-40-40-110053843.html
- https://money.usnews.com/money/retirement/articles/what-is-the-25x-rule-for-retirement-saving
- https://www.blackrock.com/institutions/en-zz/strategies/alternatives/hedge-funds
- https://goodegginvestments.com/blog/equity-multiples-and-what-they-mean-for-passive-investors/
- https://www.quora.com/Why-do-hedge-fund-managers-earn-high-salaries-despite-their-poor-investment-performance-Is-their-compensation-justified
- https://finance.yahoo.com/news/25-best-cities-where-retire-051546942.html
- https://www.investopedia.com/ask/answers/011915/can-you-invest-hedge-funds.asp
- https://mode.com/blog/pareto-chart-101/
- https://medium.com/@dontworkanotherday/how-to-double-2000-in-24-hours-9-easy-methods-dc9ee24571fb
- https://finance.yahoo.com/news/16-richest-hedge-fund-managers-114439864.html
- https://finance.yahoo.com/news/why-50-30-20-budget-120032412.html
- https://www.dukascopy.com/swiss/english/marketwatch/articles/what-is-leverage-in-forex-trading-beginners-guide/
- https://brokerchooser.com/safety/leverage-margin-limits-us
- https://www.investopedia.com/ask/answers/100515/what-do-hedge-fund-analysts-do.asp
- https://www.quora.com/Is-it-possible-for-people-to-live-off-100-a-week-for-groceries
- https://www.investopedia.com/terms/r/rule-of-70.asp
- https://www.investopedia.com/terms/o/overleveraged.asp
- https://www.opers.org/financial-wellness/50-20-30-calculator/
- https://www.eisneramper.com/insights/financial-services/80-20-investing-podcast-0322/
- https://asana.com/resources/pareto-principle-80-20-rule
- https://www.globalatlantic.com/professionals/thriving-practice/market-insights/rule-120
- https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/2-and-20-hedge-fund-fees/
- https://shahmm.medium.com/beyond-the-pareto-principle-why-80-20-is-a-flawed-rule-to-follow-2b00e9a81b4
- https://www.vintti.com/blog/hedge-fund-manager-salary-analyzing-top-tier-earnings-in-investment-management/
- https://www.institutionalinvestor.com/article/2d0quhk4ghsahyyia26m8/corner-office/the-23nd-annual-ranking-of-the-highest-earning-hedge-fund-managers
- https://www.bankregdata.com/allHMmet.asp?met=LEV
- https://www.wiseradvisor.com/blog/investment-management/how-the-80-20-rule-affects-your-long-term-investments/
- https://finance.yahoo.com/news/using-golden-ratio-finance-203347113.html
- https://www.linkedin.com/pulse/dont-perfect-good-enough-pareto-principle-8020-rule-tom-payani
- https://www.fisherphillips.com/en/news-insights/labor-departments-new-tip-credit-rule.html
- https://www.investopedia.com/articles/investing/072115/private-equity-management-fees-regulation.asp
- https://www.titan.com/articles/how-to-invest-in-hedge-funds
- https://corporatefinanceinstitute.com/resources/career-map/buy-side/hedge-funds/hedge-fund-manager/
- https://www.clevergirlfinance.com/60-30-10-rule-budget/
- https://money.usnews.com/money/personal-finance/saving-and-budgeting/articles/what-is-the-50-30-20-rule
- https://activecollab.com/blog/project-management/pareto-principle
- https://www.wsj.com/buyside/personal-finance/50-30-20-rule-budgeting-method-3d3ed0cf
- https://science.ubc.ca/students/blog/how-to-increase-your-productivity-by-doing-less
- https://addyosmani.com/blog/high-leverage-activites/
- https://medium.com/pm101/how-you-can-apply-the-80-20-rule-in-your-life-and-work-7d094a78e136
- https://www.investopedia.com/ask/answers/050115/what-are-some-reallife-examples-8020-rule-pareto-principle-practice.asp
- https://www.gobankingrates.com/money/making-money/best-ways-to-double-5000-dollars/
- https://dkrpa.com/blog/hedge-funds-protect-yourself-and-your-investments/
- https://www.philvenables.com/post/the-80---20-principle
- https://www.teamrora.com/post/quant-hedge-fund-negotiations
- https://www.empaxis.com/blog/reasons-hedge-funds-fail
- https://www.lazyportfolioetf.com/allocation/stocks-bonds-80-20/
- https://www.bankrate.com/investing/golden-rules-of-investing/
- https://hiatusapp.com/learn/hiatus-guides/70-20-10-budget-rule-what-it-is/
- https://www.quora.com/What-hedge-funds-hire-undergrads-right-out-of-college-with-little-work-experience
- https://www.primerica.com/public/rule-of-72.html
- https://www.investopedia.com/ask/answers/121614/where-does-hedge-fund-get-its-money.asp
- https://www.linkedin.com/pulse/what-unlimited-leverage-exness-forex-trading-for-beginners2-ozhgc
- https://www.investopedia.com/articles/investing/102113/what-are-hedge-funds.asp
- https://www.ecb.europa.eu/press/financial-stability-publications/fsr/focus/2007/pdf/ecb~2ccc89635c.fsrbox200706_06.pdf
- https://www.treyton.com/post/5-golden-rules-of-personal-finance
- https://www.thrivent.com/insights/budgeting-saving/what-does-it-mean-to-pay-yourself-first
- https://www.duanemorris.com/site/static/private_equity_fund_fees.pdf
- https://mergersandinquisitions.com/hedge-fund-career-path/
- https://www.investopedia.com/terms/l/leverage.asp
- https://www.financialsamurai.com/how-do-hedge-funds-make-so-much-money-inside-look/
- https://www.neeley.tcu.edu/News/Insights/The-Economics-Behind-Successful-Hedge-Funds
- https://www.mypivots.com/article/details/30/the-80-rule
- https://www.opploans.com/oppu/financial-literacy/80-20-budget/
- https://www.investopedia.com/articles/investing/042715/top-bachelor-degree-hedgefund-career.asp
- https://www.babypips.com/learn/forex/leverage-defined
- https://www.quora.com/Can-an-individual-without-starting-a-company-open-up-their-own-hedge-fund-and-manage-other-peoples-money
- https://www.ohmydollar.com/podcast/budgeting-rule-1/
- https://www.pionline.com/hedge-funds/hedge-fund-portfolios-see-667-return-2023-15-below-target-bnp-survey
- https://www.buysidehustle.com/reality-of-working-at-a-hedge-fund-an-insiders-guide/
- https://www.investopedia.com/articles/professionals/100515/top-5-highest-paid-hedge-fund-managers.asp
- https://www.linkedin.com/pulse/what-leverage-good-100-exness-in-india-spylc
- https://www.propelx.com/blog/out-with-70-30-and-in-with-60-30-10/
- https://www0.gsb.columbia.edu/faculty/aang/papers/HFleverage.pdf
- https://finance.yahoo.com/news/live-1-000-per-month-200011859.html
- https://www.investopedia.com/articles/forex/07/forex_leverage.asp
- https://www.bogleheads.org/wiki/Graham_75-25_rule
- https://eringobler.com/80-20-rule/
- https://nypost.com/2024/03/19/lifestyle/why-60-30-10-budget-is-replacing-50-30-20-method-amid-inflation/
- https://changelly.com/blog/bitcoin-margin-trading/
- https://dlab.berkeley.edu/news/explaining-80-20-rule-pareto-distribution
- https://www.linkedin.com/pulse/pros-cons-503020-budgeting-rule-hunter-coleman
- https://www.myespresso.com/bootcamp/module/trade-management-risk-management/order-slicing-and-pyramiding-how-to-use-these-trading-strategies
- https://www.wealthmanagement.com/alternative-investments/hedge-funds-periods-market-drawdowns
- https://www.linkedin.com/pulse/so-you-want-hedge-fund-billionaire-jerry-nunn-t66oc
- https://www.linkedin.com/pulse/mastering-your-finances-budgeting-60000-salary-60-20-20-zain-timimi-r0ojc
- https://www.investopedia.com/articles/forex/092115/how-much-leverage-right-you-forex-trades.asp