The 50/20/30 rule as seen here is commonly used when it comes to managing finances. Here is a breakdown of how you can use this method to do the same to your money in regards to expenses, savings, investments, bills, credit, debts and other crucial finance topics.
Bills and expenses
These are the two most important things that you spend your money on every month, week or even day. Bills are those basic household utility payments you have to make monthly to avoid disconnection. These include rent or mortgage payments, groceries, utilities, and insurance.
At most you should spend 50% of your income on these but if you can spend less, the better. To cut on costs maximize on using food and shopping coupons which save you up to 65% cash monthly on your household budget.
Entertainment section
This section of the budget is usually bigger than we think. It takes up 30% of your income after tax. The haircuts, salon and spa appointments, expensive shoes, overpriced restaurants that we visit, cable, internet, movies, holidays and trips all fall under this category. It’s difficult to ignore this part of the budget because really, we work in order to have a comfortable life and retire well.
However, it’s important to note that if you don’t limit the amount of money you spend in this segment, it may eat into the other two important segments, leaving you financially crippled and eventually forcing you to take a loan to sustain you through the month.
To be on the safe side, it’s advisable to cut down on costs. For example, you can choose to carry homemade food for lunch rather than going to a restaurant, or car pulling with your neighbors, friends, and workmates to save on fuel costs, or even better – stop impulse buying things. If you’re able to cut down on costs here, that money can be added into the investment section, and in the long run, easing your financial burden.
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- Chelsea Fagan, Lauren Ver Hage
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Investments, savings, and retirement
This segment should take up 20% of your income. If you have debts and credit balances that need to be paid, then they should be included in this part of your budget. Another important thing to include here is your emergency kitty. Most importantly, you need to save up for projects, retirement and invest your money where it will add up in terms of interest rates.
When saving, ensure you open an account with interest rates as well. A little money added to your savings wouldn’t be such bad thing. You never know when disaster will strike, so it’s better to be prepared. Just a little money sent to this emergency account can save you if things go wrong. Education savings for children also lands here.
As you can see, the 50/30/20 rule is pretty good at helping you work out your finances. As is the case with all matters concerning money, discipline and refrain from pointless expenditures are important. Follow this strategy and you’ll see a breakthrough in your financial life.
Share this information with your friends and family who may need some enlightening and help when it comes to spending and splitting money.
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