Does the 50/30/20 Rule Actually Work?
Sometimes finding the perfect thing way to save can be difficult. We don’t always find the correct one of us instantly, it is more of a trial and error process. One of the most commonly used techniques for saving is the 50/30/20 rule.
What Is The 50/30/20 Rule?
The 50/30/20 rule is a method of saving which allows you to adapt your income and outgoings into instead of randomly choosing an amount to save. The method is broken down into the categories to make it easier to follow and more streamlined. According to the rule, the main bulk of your income (50%) should be spent on the essentials. Following this, 30% should be used for things you want. Last of all, the remaining 20% is to go to be saved.
What is an essential?
For this rule, essentials are things which must be spend or paid. They are things which you cannot avoid doing or buying, even if you wanted too because they are essential in your everyday life. Here are some examples:
- Debt Repayments
What is a want?
Some people find it difficult to separate the wants and the essentials. Wants are things which you do not necessary need, but they are nice to have. For example:
- Gym Membership
- Eating Out
- Meeting Friends
Do I Need To Stick To It Exactly?
This rule might not work for everyone. Some peoples monthly income might be too large to fit, leading to too much day-to-day money and not enough savings. Or it might be the other way around. We believe the rule can be changed as long as you keep the savings to a minimum of 20%. Some people might not need as much money for their ‘wants’ or their ‘essentials’, this money should be transferred over to the savings section so you are able to build it up faster.
Why Do People Use This Method?
People use this method as it is a great way to get full control of your finances. This way you know that you can spend a certain amount on each category each month. Meaning you are very unlikely to make any financial mistakes and land your self in financial difficulty. The control also allows you to get a better understanding of your finances leading to reducing pointless purchases and taking more consideration into what you spend.
How Do I Begin To Follow The 50/30/20 Rule?
Firstly, you must calculate your finances. You should work out what you spend, what your money goes on and when you spend it. This way you can separate everything into essentials and wants. Following this, you can then work out how much 50%, 30% and 20% of your income will equate too. You might need to slowly work into the process and gradually build it up and up to be comfortable in the new financial environment.
Sometimes things occur and we do not have time to save up money for unexpected occasions. In times like this, a personal loan can help us. For more information about personal loans visit Simple Personal Loans, or click here.
Previous Post: Saving For A Summer Holiday