If you want to know about 50-30-20 in detail, then you are in the right place. This article discusses the 50-30-20 financial strategy in fact and helps you implement it in your financial journey.
50-30-20 Budget Rule - Easy Financial Planning for Beginners
Introduction
Whether you are a young employee or a seasoned earner, it is always wise to have a financial plan at hand. Trying to save and invest your money with a proper financial strategy will help you stay financially safeguarded in the long run.
Financial accounting is very important for your business and your lifestyle spending. If you have regular earnings, it is the best thing to spend your money for the proper purpose and save as much as you can. The 50-30-20 rule of money helps a financial plan that you can implement in your economic life to get a financially secure lifestyle.
Usually, the 50-30-20 rule of money requires you to segregate your income into three sections and use each portion for a specific type of expenditure.
In this article, we will help you understand the 50-30-20 rule of money so that you can implement it to get the most out of your income.
What Is The 50-30-20 Rule of Money?
In her book, All Your Worth: The Ultimate LifetimeMoney Plan, Senator Elizabeth Warren made the 50-30-20 budget rule popular. According to the rule, one has to allocate theirs after-tax income: 50% in needs, 30% on wants, and 20% to savings.
Any person with regular income may see profitable results by implementing this rule of money. Whether you are an office worker or you work in primary industries, you will see significant results once you implement this rule of money in your financial life.
Here is an elaborate explanation of each of the sections of the 50-30-20 budget.
Benefits Of 50-30-20 Budget Rule
Having a pre-planned budget of your regular earnings lets you live your life more peacefully by securing your financial position and covering your assets during unprecedented events.
Segregating your income after the tax payment is the best way to plan your retirement and investment for more wealth accumulation. If you start following this financial pattern from early in your career, you are sure to see results.
50%: Needs
According to the plan you are to spend 50% of the earnings on your needs. This spending is only for survival requirements. Those expenditures include car payments, mortgage payments, car payments, insurance, groceries, minimum debt payment, healthcare, and other necessary utilities.
These must-have expenditures do not include extra spendings like Netflix, Amazon Prime, or Hulu subscriptions. You have to fulfill all of your obligatory costs within fifty percent of your post-tax income.
If you cannot do so, then there are two options for you to maintain the budget plan. Either you cut down from the budget of wants, or you can compromise on your living standard. For instance, you can live in a smaller home or take public transport instead of private.
30%: Wants
The 30% of your income after tax payment should go on the things you want and are important to you. These expenditures are not essential, and you can skip out on some of them if you wish.
Some of these spendings include outside lunch/ dinner, movies, vacations, gadgets, fancy shopping, etc. But, as we said, you can easily skip out on any of this spending simply by choosing an alternative.
For instance, you can cook instead of going to restaurants, work out at home instead of going to the gym. Just trimming down a bit of luxury will let you skip out on the want spendings.
20%: Savings
Once you have taken care of the expenditures of needs and wants, you have 20% of your earring left. Therefore, you need to invest the remaining 20% in savings. This includes emergency fund savings, bank savings, mutual funds, stock market investments.
It is crucial to always keep emergency funds worth three months of spendings. If any unforeseen event occurs or you lose your job, you must have an emergency fund to keep you going until you take control of the situation.
Once you use up your emergency fund, you must try to replenish that first when you have an additional income.
Last Words
You will never know when your life takes an unforeseen turn. So it is better to stay prepared for the worst while you can. The 50-30-20 rule of money lets you save for such events while also ensuring your survival requirements during the course.
Financial statements are one of the most basic elements used to clarify the financial condition. Many financially successful individuals have implemented this rule in their lives and found results. We hope that you were able to understand the financial strategy of the 50-30-20 division of income from this article.