The essence of the 50/30/20 rule: an effective way to manage personal money

3.08.2022
2413
50 30 20 правило

In this article, we will introduce you to the 50/30/20 rule and the opportunities it offers. It’s no secret that in addition to income, there are also expenses in our lives. For many users today, the expenditure part of the budget exceeds their income, and therefore they are forced to live from paycheck to paycheck or borrow money.

This approach to creating a personal budget is very simple and also shows good results. Thanks to it, you will be able to diversify your funds, accumulate them and generally improve your overall financial situation. What is the essence of the 50/30/20 budget?

50 30 20 budget

According to this rule, all personal income must be divided into 3 parts, namely:

  • Spend 50% of your funds on basic equipment;
  • leave 30% for the desired amount;
  • Save 20%.

This means that half of your monthly salary or other type of earnings should be spent on housing, repayment of loans and other debts, food, clothing, transportation costs, utilities, etc. In simpler words, these are expenses that cannot be avoided and postponed.

What you want includes entertainment, hobbies, various courses, and other things that will bring you joy and improve the quality of life in general. This also includes trips to gyms or fitness centers, shopping, buying books, recreation, beauty treatments, gifts.

And 20% should definitely be set aside, you can collect them in a pension account, deposit, or make targeted savings to spend them in the future on travel, major repairs, or education.

When making a budget, you should be aware that 30% is the ceiling for non-mandatory spending. The less you spend in this category, the more money you will have left to accumulate or pay off your debts.

The second caveat is that 20% should be immediately postponed as soon as all mandatory expenses are made. And the most important thing is to do it before you start spending on what you want.

system 50 30 20

50/20/30 budget and its nuances

Don’t take this rule literally, these are just proportions that you can take into account when drawing up a budget. If you want your life to change for the better, use this rule as a basis to help create a financial safety net.

Before you start using this system, make a thorough analysis of your income and expenses. Then divide all expenses into important and optional ones. And don’t forget to ask yourself why you need all this.

The answers to this question can be very different:

  • optimize your expenses and eliminate waste;
  • save on big expenses;
  • saving for a mortgage;
  • loan repayment;
  • improving the financial situation;
  • financial independence.

Perhaps the answers listed here also include your own version. The very realization of the true cause of financial failure will help you determine the proportions of the budget. This means that there may be other proportions, for example, 50/20/30. Focusing on the goal will help you stay motivated for a long time.

Is the 50/30/20 system effective?

50 30 20

Before you start budgeting, take another look at your spending habits. It’s time to conduct a deep analysis of your purchases. Looking at the numbers, find out what you are paying too much for — ready-made food, branded clothing, alcoholic beverages, hobbies, etc. Identifying bad habits will help you make the best financial plan.

If you find a problem, then think of a way to optimize it and fix it. For example, if you spend a lot of money on buying ready-made food, find an alternative to these expenses. You can create a weekly menu, cook for several days at once, find services that deliver food to your home, and so on. You should always have an option in case you come home tired and can’t make your own dinner. This is the only way to avoid ordering expensive dishes from a cafe or restaurant, and eliminate the appearance of new” holes ” in the budget. For these purposes, get into the habit of storing ready-made frozen dishes at home, high-quality semi-finished products that can be quickly prepared. The time you will spend preparing a semi-finished product will be much less than waiting for the delivery of the next fast food or restaurant masterpiece.

Believe that the sooner you start planning your expenses, the sooner you can start living like a human being. For example, do not take a loan for travel, vacation, repairs, etc. Having free financial reserves, you can rest assured not only for your future, but also for your family.

In this article, we tried to explain the basic principles of 50/30/20 budgeting. This method is really very simple and can help you achieve your financial goals. To implement such a budget, there are many programs on the Internet that will help you keep “home” accounting.

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