How to do the maths on affordability?

How do you use the 50 30 20 budget?

The basic rule of thumb is to divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt. By regularly keeping your expenses balanced across these main spending areas, you can put your money to work more efficiently.

How do you decide what you can afford?

To figure out if you can afford to do that, divide the purchase price by the number of months you’d get interest-free. For example, if it’s a $1,500 purchase on a 90 days same-as-cash deal, you’d have to pay $500 per month. Can you afford that payment? If not, don’t use the same-as-cash deal.

What is a 30% rule?

What is the 30% Rule? Ever heard of the 30% rule? It’s the idea that you should budget a minimum of 30% of your income for housing costs, and it’s practically personal finance gospel.

How do you divide salary?

The rule is very simple in practice. It asks you to break your in-hand income into three parts. 50% of the income goes to needs, 30% for wants and 20% to savings and investing. In this way, you will have set buckets for everything and operate within the permissible amount for each bucket.