Nearly 80% of people in the US alone are in debt! Of these, 68% are in debt due to loans and credit cards. With those numbers, it’s no wonder that lots of people today are looking for ways to become debt-free. One simple way is the 50-20-30 rule.

“You must gain control over your money or the lack of it will forever control you.”
― Dave Ramsey

What is the 50-20-30 rule?


The 50-20-30 rule is a budgeting system. It is based on the premise that each and every expense you spend every month fall in any one of three categories:

50: Essential Expenses

As its name implies, these are the costs that you need to pay on a monthly basis for you and your family to survive. That is housing, transportation, utilities, and groceries. Since they are considered to be essential, this rule says that you should allocate 50% of your total budget to them.

20: Financial Priorities

The second broad category is the financial priorities group and makes up 20% of your budget. This is where you list down all of the things that you need to start building a robust and solid financial foundation for you and your family later in the future. That includes savings, investments and any debt repayments you need to settle.

30: Lifestyle Choices

If that expense doesn’t fit into the first two categories, it falls under this last category. Lifestyle choices make 30% of your entire budget. That covers everything from your Internet connection to your cell phone bill and even your cup of coffee from your favorite coffee shop.

Applying the 50-20-30 rule to become debt-free

You now know what the 50-20-30 rule is. The next (and more important) thing is to implement it if you’re deeply indebted. Well, here are some tips to help you out with that:

 Make a list of expenses


The first thing you need to do to be able to use the 50-20-30 rule is to list down all of your expenses. This is, no doubt, the toughest and most gut-wrenching part of the whole process because you’ll need to come face to face with all the expenses that you spend each. But, as they always say, “Knowledge is power,” and this is the right place to start.

 Categorize your expenses

You already have a list of expenses. Next, categorize each and every expense into any of the three categories mentioned before. For this to work for you, you need to be honest when you categorize. For example, don’t list the coffee you grab on your way to work as a necessary expense.

 Get rid of what you can

The quickest way to become debt-free is to get rid of as many costs as possible. Therefore, take a quick scan of your list of expenditure. If you see anything you can do without, strike off. Or what you can at least abstain from until you become debt-free. For example, if you always eat out while you’re at work, pack your lunch instead.

 Follow the order

When you start paying off the things that you need to pay for, begin with your necessary expenses. Afterward, work your way down the list. That way, you can breathe a sigh of relief that all the essentials are taken care of.

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