The 50/30/20 Rule
Some of you are experts on budgeting and have it down to a science. Some of you know what the word budget is but you live your life to the fullest, and it doesn’t exits in your personal life. A lot of you are immediately trying to figure out what this 50/30/20 rule could mean! How do these number correlate to budgeting?
This combination of numbers is rule for breaking down your income. The 50-30-20 rule puts 50% of your income toward necessities, like your mortgage or car note. The 30% goes to your "live a little" side. This is for the things you worked hard for and want. Lastly the 20%, this goes for your future financial goals. Save for college funds, retirement, emergency funds, ect!
Why It Works:
This creates a simple balance between needs and wants. It establishes a starting point to an actual personal financial system. If you're not sure where to begin with a budget, breaking it up into these 3 categories will give you a good outline. This will start to show you some financial progress in both saving, and money management. Creating a balance between wants and needs doesn’t come easy, sometimes you just have to revamp your ways. Since my first job at 16 years old I always saved my money. I didn’t save for a specific thing, it was just for the simple fact I loved to have "untouched money". This was the premise to my saving and budgeting habits.
When It Doesn't:
Maybe your bills take up 80% instead of the 50%. In this case you would simply use the 80/20 (80/10/10) rule. 80% on bills and necessities ,10% for leisure & activities and the remaining 10% for savings. Personally I began with this rule when I was in college because as the typical "broke college kid" I still loved to take trips, party enjoy good food ect. I always paid my bills first then used the rest in this same pattern. I never had to worry about being just "flat broke" when I applied this logic.
You may also need to have a "self check" moment. If you are thinking I don’t have "money to save", I would strongly suggest sitting down and really evaluate your current finances. Sometimes writing it out it on paper helps you really see where your money is going. I do this every six months regardless of how much I'm saving. For example last month I was spending more on Tropical Smoothie than I was on gas! ( Yes sadly, this is my secret addiction!) I saw the problem addressed it and got back on my path!
Either way the 50/30/20 rule or its variations like the 80/20 rule are good starting point to a happier financial freedom! Feel out your wants and needs and create a rule that works for you.