The 50/30/20 Budget Rule Simplified Written by Shekinah Ade-Gold on behalf of Budget Leaf
Each time when you get paid for your work, the normal inclination that you may have is to immediately start spending. This can be tempting because there is so much that can be bought, and having access to some money empowers us to be able to be able to afford these things. However, the “50/30/20 Rule” (made popular by Elizabeth Warren and her daughter Amelia Warren Tyagi) show how money can be put to use and wisely managed.
If your monthly income is (hypothetically) $30,000, then according to this rule 50% of your income should go towards everything that is an absolute necessity/responsibility. This means that $15,000 would be reserved for paying bills, buying groceries, paying the rent and taking care of other expenditures that cannot be ignored if one is supposed to live a financially stable life.
30% of your monthly amount, which would be $9000, would go towards your wants. This is the amount that you get to splurge with, whether it’s a fast-food purchase, going to the movies, or even seeing a concert. As much as earning and saving money is important, it is also very necessary to be able to enjoy what you have earned, and having this allotment makes for a guilt- free spending session.
The last 20% (which would be $6000) would go towards your savings and any debt repayments that you have to take care of. These savings can include plans geared towards attaining a house, a car, future education or even stocks and bonds. This is why it is important to take care of any debt that you may have as soon as possible, since debt repayment can actually cut into your savings.
Follow The Rule
Being able to segment your pay into these amounts can help monumentally with how much money you are able to save and spend on a monthly basis. It’s never about how much you make, but about how you utilize the amount that you make. Of course, you can make your own tweaks; you could increase your skillset to earn more money monthly, or use only half of your 30% and put the rest into your savings. Whatever you decide, be disciplined about it and let your money work for you.