How to budget: Mastering the 50-30-20 Budgeting Rule
You put a lot of effort into earning money, but do you manage your spending and savings wisely every month? Making a budget is crucial, particularly if you want to address your problematic spending habits and gain control over them. Furthermore, it helps you identify between needs and wants. Every month, we do want to save some money. However, you do get your bills and normal expenditures for your needs too. And after working so hard, there are times when we want to reward ourselves with some good food or go on a trip somewhere nice. So, how can you budget your money? If you are a student or working individual looking for effective financial habits to efficiently manage your money, master the 50-30-20 budgeting rule.
What is the 50-30-20 budgeting rule?
The 50/30/20 budgeting rule is an American concept coined by United States Senator and Harvard bankruptcy expert Elizabeth Warren. This method aims to save you money and help you manage your money wisely. Moreover, it suggests dividing your income into 50% for essential needs, 30% for wants, and 20% for savings or emergencies. Consequently, you will be able to have a big picture of your monthly budget and balance your spending and savings to spare yourself the worry of wondering where your money went.
How to use the 50-30-20 budgeting rule to effectively manage your money?
Needs (50%)
Fifty percent of your money should go to your needs. What are considered needs? These include but aren’t limited to rent or mortgage payments, utilities, groceries, transportation, required minimum debt payments, insurance, and other necessary costs. In a nutshell, these are the expenses you definitely must pay and the goods you need to survive. However, you should only require half of your after-tax income to meet your requirements and commitments.
Wants (30%)
Of course, you would also want to experience or improve your quality of life by treating yourself to some good restaurants, going on a vacation, doing your hobbies, going to the gym, and many more things. Hence, you can allot 30% of your income to the things you love or like. Wants are defined in this category of the rule as costs that improve your standard of living. However, wants are expenses you make for things that are not absolutely necessary; thus, all are optional, and it is up to you to purchase or avail yourself of your wants in life.
Savings (20%)
Lastly, you should allot 20% of your income to savings or emergencies. Having a fund for your future is very important. It helps you prepare yourself for unforeseen events in your life. Moreover, if you start saving or investing at an early age, it will become a habit. Consequently, it will help you become financially independent, providing you with more opportunities in the future.
What are the ways on mastering the 50-30-20 budgeting rule?
1. Use budget applications
Installing budget apps on your phone or laptop can be really helpful in mastering the 50-30-20 budgeting rule. By using budgeting apps, you can organize your spending and save money for your goals. In the long run, it can assist you in maintaining track of your finances. Moreover, you may connect your bank account and credit cards to some budget apps so that expenses and savings are automatically logged.
2. Put all your income, expenses, and savings in a spreadsheets
One of the simplest ways to keep track of your finances, break them down, and monitor incoming money to indicate where it goes over a specific time period is to use a Google Spreadsheet or Microsoft Excel. A good spreadsheet will include several features, such as formulas that can add up all of your money and simplify budgeting. As a result, you may edit your sheet whenever you like without having to do any additional calculations to master the 50-30-20 budgeting rule.
3. Budget in your notebook
If you are not tech-savvy or you just prefer to go the traditional way, using your notebook can also be a good option to master the 50-30-20 budgeting rule. You can start creating your 50-30-20 budget plan using any sort of notepad. Sticky notes can be placed on the pages, or you can sketch out the 50-30-20 budgeting rule’s three categories on a separate piece of paper. A pen and notebook can encourage greater involvement in budgeting.
