The 50-30-20 Rule: A Beginners Guide in Budgeting

50-30-20-rule

Being new in the workforce and managing salary is quite a daunting task. It can be very difficult to strike a balance between what you want and need. Adding all the sales in malls or from your favorite stores can really mess up your cash flow that’s why you need to do budgeting. I’ll be sharing a budgeting idea that I’ve been using for years and it’s called the 50-30-20 rule. This is just a simple and yet very easy-to-follow budgeting idea that you can do to improve the way you handle money.

So what’s a budget?

A budget according to Dave Ramsey is like telling your money where to go instead of wondering where it went. The major problem I encountered without having a budget is asking myself where my salary go after a few days from payday. This is the same old story in every office setup, which I guess is where petsa de peligro comes. Yes, we can make fun of it but this is actually not a good picture to paint in the long run.

The 50-30-20 Rule

This rule is popularized by Elizabeth Warren in her book called “All Your Worth: The Ultimate Lifetime Money Plan.” Unlike other kinds of budgeting, this is easier to use because you’ll just be dividing your income into three categories, i.e. savings, needs, and wants. Budgeting doesn’t need to be complicated just to be effective.

Save 20% of Your Income

Do you know what is the best way to save a portion of your salary? Well, of course, it is to save a portion of it as soon as you get your cut. The most common mistake you do is to save after spending. I was also once guilty about it. but if you do this then it will really become a challenge to save. What if you spend it all? It means you won’t be able to save anything and that’s something you don’t want to happen every time, right? Remember to always save before spending.

This 20% can be broken down further into an emergency fund, insurances, and investments like a mutual fund or UITFs.

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50% on Needs

Allocate half of your earnings on your needs like food, utilities, transportation, and day-to-day living expenses. This percentage might not be sufficient at first but if you’ll analyze where your money is going you’ll soon realize that some of them are not actually a need but a want. Set it aside for the meantime and focus on your needs first.

Spend 30% on Wants

Don’t forget to treat yourself because you deserve it. Yes, you certainly do from all the hard work you’ve done. Most of us are not really into budgeting because we are taught that it’s boring because it’s all about saving and we’ll never get to taste our hard work but that’s wrong. You also need to treat yourself to a nice dinner or a relaxing vacation. Don’t be too hard on yourself, after all, we only have one life to live so spend it well.

Conclusion:

I never knew that budgeting can be simple, effective, and enjoyable until I tried the 50-30-20 rule. This is not as intimidating as other budgeting ideas out there loaded with terminologies that are hard to understand. You get to save plus you also get to enjoy. I can swear at this technique as it has been really effective to me while using it side by side with my envelope system. I hope you can also share your thoughts in the comment section below.

READ: Budgeting 101 | Cash Envelope System

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