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The Correct Answer: B. Spend 50% on Needs, 30% on Wants, and Save 20%

The 50/30/20 rule is a simple and effective way to manage your budget. According to this rule, you should:

• Spend 50% of your income on needs: These are essential expenses like housing, groceries, utilities, and transportation—basically anything that you can’t do without.

• Spend 30% of your income on wants: Wants are non-essential items that improve your quality of life, like dining out, entertainment, vacations, and shopping for things you enjoy.

• Save 20% of your income: This portion should go toward savings, investments, or paying off debt. Building an emergency fund and contributing to long-term savings goals will help ensure financial security.

hy the 50/30/20 Rule Works

1. Easy to Follow
   The simplicity of this rule makes it an excellent budgeting method for beginners and anyone who wants a clear, straightforward way to manage their money.

2. Encourages Balance
   By splitting your income into needs, wants, and savings, you can enjoy life’s pleasures while making sure your financial foundation is strong.

3. Supports Financial Goals
   Allocating 20% of your income to savings helps you build an emergency fund, pay off debt, or invest in your future.

4. Flexible and Adaptable
   You can adjust the percentages to fit your personal circumstances. For example, if you're saving for a big goal like a house, you might increase the savings percentage while cutting back on wants.

How Can You Apply the 50/30/20 Rule?

1. Track Your Income and Expenses
   Start by understanding how much money you bring in and where it’s currently going. This will give you a clear picture of what adjustments you may need to make.

2. Categorize Your Spending
   Identify your needs, wants, and savings categories. Be honest with yourself about what falls into each category.

3. Automate Savings
   Make saving easier by setting up automatic transfers from your income to your savings account.

4. Stay Consistent
   Sticking to the 50/30/20 rule over time will help you build good financial habits and make it easier to manage your money.