Imagine that your personal budget is like a birthday cake, and the guests at the party are your needs. How do you divide the pieces of the cake to make it fair? The 50/30/20 rule helps you find the answer. In this article you will learn how to divide your money to take care of your household budget.
Why is the 50/30/20 rule so good?
It's time to explain what the 50/30/20 rule is in general. It is one of the methods of creating a budget, which involves dividing expenses into 3 groups:
- necessary expenses, such as food, rent, insurances or transport,
- pleasure expenses, such as cinema tickets, traveling, games,
- expenses on investments and savings.
The rule of thumb is based on the fact that 50% of your earnings is to be spent on existence expenses, 30% on pleasures and 20% goes to take care of your future. Simple, right?
Moreover, you are not limited in making decisions. If you consider the purchase of 60 coffees a month a pleasure worth $300 a month, then as long as you assign this expense to group number 2, you are ok. This is a huge advantage for people who associate saving with a lack of enjoyment.
Due to its popularity, many tools related to the 50/30/20 rule have been created. Budget calculator and budget planner are just some of the many options. Tools related to personal finance help a lot in saving time. Why waste time organizing your personal budget?
Ok, but why 50/30/20, not 65/25/20?
There is no clear answer to this. The creator of this formula, Elizabeth Warren, is surely a great financial advisor, but the proportion that she gave doesn't necessarily work in every case. If you know that necessary expenses represent 70% of your salary, it will be obvious that you won't be able to reduce this proportion to 50% right away. Just modify the 50/30/20 rule!
If you are maintained by your parents, perhaps it will be the 0/50/50 rule, after all, you don't have to worry about whether last month's bills are paid.
What's different if you live in extreme poverty. It's possible that up to 90% of your income will be spent on necessary expenses. In such a situation, you can also save, but it will certainly work out much worse for you.
This model of running a budget motivates earning
Let's say that you modify the selected proportions every 2 years, and you promised yourself that you wouldn't do it earlier. If you are earning $3,000 a month at the moment, according to the 50/30/20 rule, you can spend $900 on pleasure. Of course, you can also plan for some future spending and just put some money aside, but your possibilities and patience are not endless. What if you somehow increase your income by $500? The amount of cash for pleasure increases by $150, and at the same time you start saving more money and raise your standard of living.
If you can't get a salary raise at work, you need to learn how Paidwork works! It's a great tool for earning extra money to help increase your budget.
Print or buy a budget planner
If you want to get even more in control of your personal budget, you can use a variety of proven tools. A budget planner, for example, will work perfectly.
A budget planners take many forms. Sometimes it comes in the form of mobile apps and computer programs, but you can also find printable worksheets online where you can write out your monthly budget. This is a cheap and very effective solution, although it will not suit everyone.
Budget calculator
If a simple budget planner printed on a piece of paper is not enough, the answer is an advanced budget calculator like THAT and THAT. There are really a lot of them, and the main advantage is the very extensive customization options. Of course, there are also simple solutions, but we don't see much point in them, because you might as well use a piece of paper and a calculator.
If you can't get a salary raise at work, you need to learn how Paidwork works! It's a great tool for earning extra money to help increase your budget.
Be consistent
Wealth is usually the result of responsibility and rationality. Although there are huge lottery wins or unexpected profits, fortune usually takes years to come to.
For the 50/30/20 rule to make sense, you need to be diligent about it for years, and if you are unable to reach it right away because the cost of renting accommodation is too expensive, or your hobbies are not that expensive, don't feel guilty if you need to make some modifications to the rule.
Look for savings
Even the best budget calculators won't make sense if you don't spend your money wisely. Although, it is impossible to reduce some expenses. Renegotiating your rent or garbage collection fee can be problematic, but if you can, spend your money so that spending on pleasures will result in long-term happiness, not just a temporary smile.
There are many ways to save money! The best financial advice on running a household budget we can give you is "don't force yourself to spend money".
Think about what expenses you can eliminate or replace. Maybe you don't need to use your car so often? Gasoline prices are now at an all-time high. Or maybe you don't need to buy coffee at the cafe so often? Perhaps you can save a lot of money that you now spend on Riot Points or game skins? There are many ways to do this, but in these times of high inflation around the world, it makes sense to look for ways to cut back on nonsense spending.
This article is only the beginning of a vast knowledge base about saving money. Remember that in addition to saving, you have to successively increase your income and avoid unnecessary expenses, such as transfer commissions, which you can read about HERE. If you don't yet know how you can earn from home, either as a stay-at-home mom or as a teenager, then click through the articles and invest in your knowledge!
