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50%, 15%, 5%

August 31, 2018

Some households manage their finances according to these percentages.

The 50/15/5 rule presents an easy-to-remember guideline for household budgeting and saving. It is easily explained: each month, you assign 50% of your take-home pay to essential expenses, 15% of your pre-tax income to saving and investing for retirement, and 5% of the money you take home to an emergency fund.
For affluent households with ambitious retirement savings goals, the 50/15/5 rule may be a great financial tenet to follow. If you live in such a household and have the financial ability to live below your means, limiting essential expenses to 50% of your paycheck may be within your capabilities. More and more retirement savers are being urged to direct 15% of their total incomes into qualified retirement plans rather than 10%, which has long been the common teaching. As the nation’s personal saving rate is under 5% today, some people risk finding themselves short on cash in a jam, so saving 5% each month is a reasonably painless way to build an emergency reserve. If this seems like a big budgeting and saving commitment, remember that the 50/15/5 rule still leaves 30% of household income for “everything else.”