50/20/30 Rule – Simple Budgeting Hacks
Posted by Pierre Wright on April 15, 2018
Budgeting is an extremely important part of securing a financial stability. Organizing your finances in a way that will assist you in reaching your ultimate budgeting goal is the ideal plan. Utilizing techniques such as the 50/20/30 budget will help get you to where you need to go. The earlier you start to use this technique, the easier it will be to gain financial ground. It is important to have a proven routine, especially for young adults who are only beginning to take an interest in their own personal finance. Leveraging the right tools to help organize finances will ultimately help you to prepare for your future.
- The Essentials – 50% of your total income
Yes – this may seem like a large portion of your income to set aside, but once you take into account all of your necessary expenses (which include rent, transportation, utility, and food), this allocation begins to make sense. If you have any outstanding debt, any required minimum payment should also be considered an essential because your credit score could be negatively impacted if you fail to make your payments. Keep in mind these basic necessities of living must be covered regardless. The good news is that once you are comfortable with setting this amount aside, it will be able to help you to understand how to split your pay and formulate a balanced budget. Having already accounted for the amount you need to spend on essentials, you can move forward with your budget as you can better visualize the number of funds available for other areas.
- Personal Expenses – 30% of your total income
The fun part of this plan is the personal expenses budget – everyone’s favorite kind of expense! You can use this amount to cover expenses on things such as new clothing, a movie with your significant other or even putting money towards a trip you’ve been planning to take.
Although the percentage of the budget allocated to personal expenses is intended for you to spend on just about anything, you must keep in mind that personal expenses are ‘wants’. The less you spend on personal expenses, the more money you have left over for savings. Be thoughtful about the money you spend on personal expenses – shopping at the right places could help you save money to stretch each hard earned dollar. Keep in mind that the 50/30/20 budget is just a starting point if you can afford to, over time you can allocate a larger percentage of the budget towards savings to reach your long-term goals faster!
- Savings – 20% of your total income
This is the final and a very important step to guarantee the effectiveness of this budget. Make sure that you set aside at least 20% of what you make and allocate it towards your savings. The funds allocated towards savings will be considered a “rainy-day fund” or an “emergency fund
” to cover the unexpected. You can also use this portion of your income to cover make additional payments to pay down any outstanding debts you may have. Budgets like this will help to reduce your over financial stress and allow you breathe easy. For more tips on how to save more than you spend check out this article