How To Manage Your Money (50/30/20 Rule) — Transcript

Learn how to manage your money effectively using the 50/30/20 budgeting rule to balance needs, wants, and savings.

Key Takeaways

Use the 50/30/20 rule to allocate after-tax income into needs, wants, and savings/debt repayment.
Needs are essential expenses that you cannot live without, such as food and shelter.
Wants improve quality of life but are not essential, including hobbies and dining out.
Savings and debt repayment should be prioritized to build financial security and emergency funds.
Tracking your budget visually helps prevent overspending and financial stress.

Summary

Introduction to the 50/30/20 rule for personal finance management.
Explanation of the poll results showing audience interest in personal finance topics.
Breakdown of the 50% allocation for needs, including groceries, housing, and health insurance.
Definition and examples of wants, which make up 30% of the budget, such as dining out, shopping, and hobbies.
The importance of allocating 20% of income to savings and paying off debt.
Advice on building an emergency fund covering 6 to 12 months of living expenses.
Discussion on paying off debts using methods like debt avalanche and debt snowball.
Emphasis on saving for retirement and the risks of neglecting it.
Encouragement to write down and track monthly net income and expenses for better budgeting.
Call to share the video with friends and family who could benefit from personal finance education.

Chapters

Full Transcript — Download SRT & Markdown

Speaker A

Welcome back to Whiteboard Finance. My name is Marco, and I'm here to help you master your money and build your wealth. Today, we're talking about how to manage your money using the 50/30/20 rule. But before we get into the video, I just want

Speaker A

to show you very quickly a screenshot here of a poll that I ran about two weeks ago. So we have a lot of new subscribers to this channel, which is great, and about 834 of you voted on this poll, which is

Speaker A

awesome. So basically, that poll is just asking what kind of videos you want to see from this channel, and 30 percent of you said personal finance related, 22 percent said stock market, 18 percent said cars, 17 percent want to learn more about real

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estate investing, and 13 percent said how to make money online. But the encouraging thing is that most of these comments from this poll were people saying they wanted to learn about all these things, so thank you so much to those who did

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vote and contribute, and that's why I want to talk about personal finance in this video today. So you may be wondering what the 50/30/20 rule is. So as always, let's write this down so we can get a

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visual representation of what this means. So pretend that we have a pie right here, and half of this pie, which is the 50 percent, actually stands for your needs. So again, this is all about budgeting and understanding where your money is going,

Speaker A

and in an ideal personal budget portfolio, 50 are needs. Let's call this 30 percent are going to wants, and then 20 is going to savings or paying off debt. So now that you have a visual representation, let's break down each one

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of these numbers and give you examples of each so that you can be gauging your own personal finance based on these metrics. Keep in mind we're working with after-tax dollars, which is called net income. So you may have a gross pay of, let's say,

Speaker A

50 grand a year, but after taxes, you're only dealing with another specific number. We're using that after-tax dollar number. So in terms of the 50 percent needs, what are some things that can be included in this? So let's think about

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regular living expenses. So we have groceries, we have housing, whether you have a mortgage or rent, you have insurance for health. Heaven forbid something happened to you, I would consider health insurance definitely a need. You can have utilities, so electricity,

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things like that, etc., etc. So the way I define a need is that it's basically something that would greatly inconvenience you or something that you literally cannot live without. So food, shelter, things like that. So when you budget 50 percent towards

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your needs, remember that those are what you're looking at. So the next logical area to go into is going to be what is really considered a want, and I think this is where most Americans run into the difference between wants

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and needs. Okay, so a want is something that causes a minor inconvenience in your life. Okay, it's not necessarily a need to where, hey, if I don't eat or if I don't have shelter, I may die. Right? A want is something where it's like, hey,

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you know, am I willing to give a minor inconvenience like dropping Netflix or not having Hulu or not buying a brand new grill to grow a steak on? You know, those are needs. Okay, so some of the things that would fall

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under this category would be things like shopping. Do you absolutely need to shop for brand new clothes right this second? Are you gonna drop dead if you don't get a new pair of shoes? Maybe my wife will, but I know that I can

Speaker A

survive. Um, you know, dining out. I think this is a big one for Americans. A lot of people, for whatever reason, their lifestyles are so busy that, you know, it's easier just to jump in the car and go grab something to eat rather than

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preparing the food yourself. Hobbies. So I think that everyone should definitely have a hobby. That's one of the greatest joys of life, whether it's gardening, you know, you fly drones, you're a video editor, whatever you want to do,

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whatever keeps you happy as a hobby. This definitely falls under a want because it's not necessary to live. So again, guys, a want is something that you don't necessarily need, but it improves the quality of your life greatly.

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So let's go to the last 20, and I know a lot of this sounds basic, but until you actually write this down and understand where all your money is going to, it's like your wants can easily creep into

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that needs category to where they're both overflowing and you're in debt every month. So speaking of debt, let's talk about savings. Okay, so savings and paying off debt, this is where the last 20 of your income should go to, and again, these are all net

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numbers. So if you have, let's call, let's say, for example, an emergency fund, okay, this I would consider savings. What I like to do for emergency funds is 6 to 12 months of living expenses. So if you know that

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your needs category and a little bit of wants comes out to be, let's say, 2,000 a month for your entire family, you know that you need to save about 12 to 24,000 in your emergency fund. I know that

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sounds like a lot of money, but, you know, one or two layoffs in a family of, you know, one or two income earners, that can really save your butt right there. You guys obviously, you know, paying off debts. So

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if you have credit cards, you know, student loans, things like that, these are debts that you should just smash using that 20, and I will make another video about how to actually pay off debt using the debt avalanche and the debt snowball method.

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Okay, and then obviously, if you want to save for retirement, in my opinion, this is one of the things that most Americans will be suffering from 20, 30 years from now because a lot of them are just not focusing on

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retirement savings. So I know a lot of this stuff sounds like common sense, you guys, but until you actually create a monthly budget knowing what your monthly net income is, breaking it down by 50, 30, and 20 percent, you would be surprised at

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where different dollars go for different categories. So unless, unless it's not a want or a need, I would definitely put it under this 20 savings and debt category. So that's pretty much all I have for you guys today. I know that this may not be

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some earth-shattering information, but again, until you actually write it down and understand where every single one of your after-tax dollars is going, you might be surprised. So I know this video is a little bit on the shorter

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side, but again, it's very important information. So if you have a friend or family member who would benefit from it, please share it with them. I implore you. A lot of people are getting a lot of benefit from these videos, and I don't

Speaker A

ask for anything in return, just that you share it. Thank you so much, everybody, and have a prosperous day. [Music] You

Topics:personal financebudgeting50/30/20 rulemoney managementsaving moneydebt repaymentemergency fundretirement savingsfinancial planningWhiteBoard Finance

Frequently Asked Questions

What is the 50/30/20 rule?

The 50/30/20 rule is a budgeting guideline that allocates 50% of after-tax income to needs, 30% to wants, and 20% to savings or debt repayment.

What expenses are considered needs in the 50/30/20 rule?

Needs include essential living expenses such as groceries, housing (rent or mortgage), health insurance, and utilities—things you cannot live without.

How much should I save for an emergency fund according to this video?

The video recommends saving 6 to 12 months' worth of living expenses in an emergency fund to cover unexpected events like layoffs.

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