In a previous article about budgeting your money, we talked about different ways on how you can successfully budget your money so that you can last until the next payday. One technique we taught you is the 50/30/20 rule which is a rule that talks about different divisions of money. In this article, we will delve deeper into the topic on what the 50/30/20 rule is about and how it can be most effective in budgeting your income.
To begin with, what is this rule all about? Well if you are still confused on why it is called 50/30/20, these values determine the percentage of where your income should go. If you add the three values, you will have a sum of 100 which is the totality of your take-home pay. Of course, it is not mandatory for you to exactly follow what the rule says; you can tweak it a little bit but of course you should not change the idea or the essence of the technique.
50 – 50% of your income should go to the essentials
According to the rule, you should not go above 50% of your total take-home pay in paying for your essentials in life. 50% may seem like a big value but it will make a bit more sense if you know the things that fall under this category.
For clarification, the things that fall under this category are the things you cannot live without regardless of what you do for a living and where you live. These are the absolute necessities that you need to live. Under this category, the things you need to consider are:
- Utility bills
Because of the big percentage, it can help you adjust or it can teach you ways on how you can abide to the rule for the future incorporation of the rule to your life. You can extend it up until 60% if you are having trouble adjusting with the rule but be sure to adjust the other 50% or to abide to the rule the next payday.
20 – 20% of your income should go to your finances or savings
When we say finances, it is everything that’s payable like debts, funds, etc. Of course, you would want to save something out of your salary but of course, you just can’t go about having a full milestone of 50% of your whole salary right? That’s why you only need to dedicate at least 20% of your salary to this. Think of it as the bigger part goes to life necessities whereas the 20% or the smallest part goes to personal or financial obligations.
While you’re still young, it is best to at least keep 20% of your total take-home pay inside your savings so that you have something to run to if it is needed urgently.
30 – 30% of your income should go to your personal endeavors
Well we need a little bit of reward to ourselves for doing a good job at work, right? This rule is made probably because of this in order to avoid unnecessary spending which can make or break your lifestyle. By being disciplined and motivated, this can enhance your lifestyle in the best ways that you can. Some financial experts think of this category as discretionary but because of the trend and the modern society, many people choose to live in their little bubble of luxury.
Eating out, vacations, entertainment, or whatever you’d like can fall under this category. In fact, you can even just cut this whole 30% and add it to your finances or savings or your essentials if you wish to. But doing that can cause you to have a habit of not rewarding yourself leading to you being unable to escape the cycle of it. It is recommended that you treat yourself once in a while so that you will feel your income.
Building the good habit of thinking before you spend on things can greatly change your status in life. Your future does not really depend on how much money you put into something, it depends on how you budget your money and how you yearn to work harder so that you can earn more. Try this 50/20/30 rule and witness the change in your finances and your lifestyle.
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