A:

Senator Elizabeth Warren popularized the 50/20/30 budget rule in her book “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to divide after-tax income, spending 50% on needs and 30% on wants while allocating 20% to savings.

Needs

Needs are those bills that you absolutely must pay and are the things necessary for survival. These include rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment and utilities. The "needs" category does not include items that are extras, such as HBO, Netflix, Starbucks and dining out.

Wants

Wants are all the things you spend money on that are not absolutely essential. This includes dinner and movies out, that new handbag, tickets to sporting events, vacations, the latest electronics gadget and ultra-high-speed Internet. This category also includes those upgrade decisions you make, such as choosing a costlier steak instead of a less expensive hamburger, buying a Mercedes instead of a more economical Honda or choosing between watching television using an antenna for free and spending money to watch cable TV. Basically, wants are all those little extras you spend money on that make life more enjoyable and entertaining.

Savings

Allocate 20% of your income to savings and investments. This includes adding money to an emergency fund in a bank savings account, making IRA contributions to a mutual fund account and investing in the stock market.

Savings can also include debt repayment. While minimum payments are part of the "needs" category, any extra payments reduce principle and future interest owed, so they are savings.

Hot Definitions
  1. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  5. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  6. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
Trading Center