Welcome to Rewire’s 4-part series about budgeting for migrants. Managing finances in two countries simultaneously is tough, but by creating and sticking to a budget plan, you’ll have an easier time saving your money. In this series, you’ll learn what goes into a budget, how to create your own budget, and some tips to help you along the way.
What Is the 50/30/20 Rule?
In her book All Your Worth: The Ultimate Lifetime Money Plan, US Senator Elizabeth Warren popularized the 50/30/20 rule. The 50/30/20 rule is an easy way to organize your budget so that you know exactly how much to spend on different expenses. The rule is simple: 50% of your income should go towards your “needs,” 30% of your income should go towards your “wants,” and the remaining 20% should go towards your savings. This gives you an easy way to budget for all your expenses and assign them to different categories.
How Can You Budget With the 50/30/20 Rule?
Applying the 50/30/20 rule to your budget means you first need to decide what expenses are “needs” and which ones are “wants.” In part one of this budgeting series, we talked about discretionary and non-discretionary expenses. The same concept exists in the 50/30/20 budget, so in other words, your non-discretionary expenses, like rent, bills, and food are the ones that are essential, or your “needs,” and the discretionary expenses, like entertainment, subscriptions, or meals at restaurants are your “wants.”
What you need to do to use this type of budget is try and ensure your actual expenses fit within the percentages of the 50/30/20 budget. Meaning that if your expenses for things like subscriptions, hobbies, and other forms of entertainment are taking up 50% of your income, you might need to reconsider what you’re spending money on.
Can I Use the 50/30/20 Rule as a Migrant?
The 50/30/20 rule wasn’t necessarily created with migrants in mind, but that doesn’t mean you can’t use it. What this rule doesn’t take into account is variables, meaning the different situations we each find ourselves in. For example, some people might live in more expensive cities where living expenses account for 60% of their income, while others might prefer a lifestyle where a higher percentage goes towards their “wants.”
The 50/30/20 rule isn’t set in stone, so you can use it as a template and tweak it for your own needs. Typically, as a migrant, you probably want to save more than 20% of your income since you need some of your own savings and you also want to save enough to transfer money back home to loved ones. In this case, you might want to consider a similar budget, but instead divide it differently, such as 40/30/30. You can also divide your budget into four instead of three to reflect your unique budgetary needs as a migrant. You might want to consider 30/20/20/30 instead, so 30% for needs, 20% for wants, 20% for your own savings, and 30% for remittances. Find the division that works best for you and use that as your guideline for creating a budget.
Many people swear by the 50/30/20 rule, but it’s not the only way to create a budget. It’s also only one part that goes into budgeting. You also need to know how to actually sit down and write out a plan for a budget that you’re going to use in the long term. Next, we’ll teach you a step-by-step approach on how to create your own personal budget.