The budget 50/30/20 might just be the life saver you've always needed.
We all want to not just earn money, but also manage our finances smartly. When you manage your finances well, you retain so much of your money made, and that right there is how you build wealth. It is difficult to build wealth without having a good knowledge of it. Learn more about wealth building here.
With that being said, of course it's not just about being rich, it's about being able to live a comfortable life. Money comes with security and security comes with comfort.
We are all trying our best to earn money, lots of it. Picking up whatever side hustle we can, just to earn a little extra passive income. But with all of that hard work and sacrifices, you want to be able to build something sustainable. You don't want everything that you own to disappear by the end of the month. Managing your money is necessary in order for your sacrifices to really add up to something.
I will always advice everyone to go into budgeting and keep track of finances, because without that you are left unable to account for the all the money you earned. And all of that money is hard work and time spent. You don't want it all to go to waste. Start budgeting today, and honestly, digital budgeting saved my life and my bank account.
Get your digital budget planner here.
When it comes to budgeting the 50/30/20 rule is such an easy way to save money. Watch your savings sky rocket when applied to your saving strategy. I used to always feel like I didn't have any money to spare until i implemented the zero budget strategy and the 50/30/20 rule to my life.
What is budget 50/30/20
The 50/30/20 rule in simple terms is budgeting that requires you to track and divide your expenses into three main categories: needs, wants, and savings or debt.
Elizabeth Warren and her daughter swear by the budget 50/30/20 rule. This rule is a basic guideline for allocating your budget into three categories, 50% to basic needs, 30% to wants, and 20% to financial goals.
So this rule gives you a basic idea of how to spend your money wisely and control your unnecessary expenditure. Let’s get into it a little bit more and elaborate on what is considered needs and wants.
50% to Needs:
Needs are those expenditures that you must pay and are necessary things for your living. The needs include rent, groceries, health care, insurance, and other utilities such as electricity bills, water, etc.
30% to wants:
Wants are our desires, but it is not necessary for survival. This includes hobbies like going to the gym for workouts daily, going out for dinner, watching movies on theatre game tickets, vocations, and so on.
20% to financial goals:
This is the non negotiable 20% of your income that should be saved for investment. You can add your money to saving banks, invest in the stock market, cryptocurrency or other.
A good way to start tracking your expenses so that you are able to categorize them is budgeting.
How to apply the budget 50/30/20 rule to your life
At this point we fully understand the need to manage our finances. The 50/30/20 formula, will have you on track when it comes to saving and this is exactly how you will be applying it to your finances.
Calculate your after tax income
After tax income is essentially your income after paying tax. If you are a business owner or a free lancer, your after tax income is what's left of your money after you put back into your business what it needs to keep running.
Write down your expenses
The first thing you need to do is make a proper plan. Write down exactly what you spend your money on for at least a month. Nothing is too little to note. Write them all down, they all count.
Writing exactly what you use your money for gives you a good idea of where your money goes. This will come in handy for the next step.
Categorize your finances:
After making a plan, and noting exactly where your money goes for at least a month. You can now have a good understanding of where exactly you spend your money monthly. Categorize your spending into needs, wants, and saving.
Make sure you understand what needs and wants are to categorize your expenses properly. It is also at this point you look at exactly what you spend and decide for yourself if you need to cut back on certain things or not.
Budget 50/30/20 rule
Now that you have specifics of how much you spend monthly, and it has been put into categories of wants and needs. You need to make a plan. Allocate your income. Make sure your needs is not more than 50% of your income. Your wants should not be more than 30%, and then make sure to allocate the 20% of your income to savings or paying debt.
Track your budget
Tracking your budget is so important. It helps keep you on track and make sure you never go beyond what was planned. This is why i always have my digital planner to keep me on track and save more.
Final thoughts on budgeting using the 50/30/20 rule
Saving and budgeting does not need to be complicated at all. Using this budget 50/30/20 rule, will help you manage finances better and save more. Here are also ways you can actually save money fast and grow your savings.
Using the zero based budget along side the 50/30/20 rule will really transform your life financially.