How to plan a budget according to the "50/30/20" rule and start saving without much difficulty
Miscellaneous / / January 03, 2022
An understandable method that will help you put your spending in order.
What's the 50/30/20 Rule
It is an intuitive way to manage your personal or family budget. All income is divided into three main groups: 50% of the funds are spent on needs, 30% - on "Wishlist", and another 20% go to the piggy bank.
This ratio is not a dogma. The very creator of the rule, US Senator Elizabeth Warren, noticedE. Warren. All Your Worth: The Ultimate Lifetime Money Plan: even think of your own proportions, but at least start to follow the money, and life will get better.
The essence of the budget is to see income and spending, and then learn how to manage them. Ideally, you manage your money so as not to get into debt, be prepared for the surprises of life, and quietly secure your future. The 50/30/20 rule can help you achieve all of these goals.
50% of the budget - for needs
These are compulsory expenses: apartment bills, water bills, and so on, as well as things without which you cannot survive. The latter typically include loan payments, rent, rent, food, clothing, transportation, and drug costs. Sometimes life, health and important property insurance is added to the list.
When a person calculates spending in this category, he will be able to understand whether he is living within his means. If the needs are only a small fraction of the budget, that's great. If the situation is the opposite, this is a reason to think. For example when rent an apartment eats up 40% of earnings, the budget is not the most balanced. And perhaps because of the good location, you don't have to spend money on transport - then everything is not so bad.
It is important to understand the bottom line of your spending and then build on it.
30% of the budget - for "Wishlist"
These are add-ons that make life more enjoyable, funnier and more varied. Without them, a person will definitely not die and ruin their health: you can live without a subscription to streaming, restaurants or a new bag.
Unlike needs, Wishlist is easier to manage. They usually have gradations. For example, you can buy a subscription to a cool fitness center, or you can choose a simpler gym or do sports at home. Or, instead of going to an expensive Italian restaurant, cook risotto at home.
It works the other way too. Suppose that a person has allocated 30 thousand rubles for a month. The salary is in two days, and there are still 10 thousand left. It is not necessary to save to the last: since the budget allows, then you can go for a good steak.
20% of the budget is savings and investments
The rest is worth saving for the future. First of all - on the airbag. This is a reserve of money on which you can live 3-9 months without income or pay for sudden large expenses like a new refrigerator or expensive treatment.
And then you can start investing in order to earn more. The methods can be different: a bank deposit, a stock exchange, or even a cryptocurrency. There is no suitable option for everyone, the main thing is to think over in advance investment strategy.
How to apply the 50/30/20 rule in life
The creator of the rule, Elizabeth Warren, constantly reminds us: do not suffer too much, count everything to a penny every day and perfectly maintain the limits. The budget is needed to take control of finances, and not to get to a psychotherapist. Therefore, you should slowly start by examining your situation.
Calculate monthly income
Before dealing with expenses, it is worth knowing the exact amount of income. Almost every adult has several sources of income: salary, bonuses, regular and not so part-time jobs, dividends by shares. Most likely, a constant and several variables will be revealed.
For example, a person earns 50 thousand rubles, 10 thousand dividends come every three months, and part-time jobs have brought 150 thousand over the last year.
Next, you need to calculate a simple average:
(50,000 × 12) + (10,000 × 4) + 150,000 = 790,000 rubles per year = 65,833 rubles per month.
Reallocate expenses under the new budget
Now you can make a budget according to the "50/30/20" rule and understand what is worth spending on and what not.
So, renting an apartment for 30 thousand rubles is too expensive, as well as taking a walk in a bar 10 thousand at a time. And you won't be able to postpone so much. However, such information is not a cause for alarm, but rather food for thought. Perhaps it's time to look for a new job or, conversely, cut costs. In the latter case, the easiest way is to reduce spending on "Wishlist": neither your life today nor your future depend on them.
Do not get carried away with the observance of proportions
You shouldn't immediately reshape life under the new rule. Better to observe yourself and your usual spending for a couple of months.
Maybe nothing needs to be changed, because the rule is already working - it is no coincidence that it is simple and intuitive.
However, you will most likely need to adjust your spending. Perhaps, needs eat up 60% of earnings: then you will have to cut down on "Wishlist" and transfer money for what is needed. Or 30% of income is spent on needs. In this case, you can afford more and start investing more actively.
What are the risks of the "50/30/20" rule
Features to keep in mind.
Not everyone has enough income
The rule will not work if needs are nearly equal to income. For example, if 80% of the budget is spent on what is needed, save or spending money on entertainment will definitely not work.
It's easy to fool yourself
For example, the category “food” obviously refers to needs. But the products are different. Whole food is not the same as snacks. You cannot do without a normal lunch or dinner, because it will harm your health. But without chips for the TV series it is quite possible, so they end up in "Wishlist".
The share of savings depends on the purpose
If a person is going to build a house in 10 years, by retirement, then they need to save more. For example, not 20%, but 40%.
For example, if you save 13,167 rubles a month for 10 years, then a little more than one and a half million will be accumulated for retirement, excluding possible interest. This money is unlikely to be enough for a house. But if we raise the share of savings to 40%, then it will already be 26,334 rubles a month, or 3,160,000 rubles in 10 years.
What is worth remembering
- 50% of income - for needs. Everything without which it is difficult to live normally: an apartment, food, clothing, transport, medicines.
- 30% - for "Wishlist". These are things that make life more enjoyable and more varied, but you can do without them: travel, restaurants, a subscription to an expensive fitness center.
- 20% - for savings. First the airbag, then investments or bank deposits.
- To apply the rule, you need to calculate real income and expenses, set goals and follow the budget. It is not necessary to keep the proportions and count every penny. The main thing is to take control of cash flows.
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