How to save using the 50,30,20 Rule

2
2148

The 50-30-20 budget rule is an inherent and manageable plan to help people reach their financial goals.

This budget rule was publicized by the well-known Senator Elizabeth Warren in her book “The Ultimate Lifetime Money Plan “. The basic rule here is to divide up your after-tax income and allocate it where by you spend 50% of it on needs, 30% of it on wants, and ensure 20% of it goes to savings

 Read below as we are kind enough to guide you on how to easily follow this budgeting plan.

Your site doesn’t have any tags, so there’s nothing to display here at the moment.

50%: Needs

A need is something you absolutely cannot do without . The must haves. This can be those bills that you must pay and all the things that you need for survival. This  may include  rent , mortgage payments ,food, insurance or health care  and other important utilities.

According to the senator half or 50% of your after-tax income should be spent to cover your needs and all this necessary responsibilities. Incase you are  spending more than that amount on your needs, you are to downsize your lifestyle  e.g maybe move to a cheaper house or maybe result to taking public transportation to cut on your fuel consumption .

30%: Wants

Wants are seen to be the things you spend money on that are not in any way essential. This may include date outs, that pair of boots that you don’t necessarily need, vacations, that latest electronic, bills like Netflix or anything you want but can do without.

This category mostly includes those high standards decisions you make every day like choosing an expensive car or house basically, wants are those little extras you spend money on so that life is more interesting and enjoyable.

20%: Savings

In the end you can now try to allocate the remaining 20% of your net income to savings and also investments. This includes depositing money in your bank savings account , having an emergency fund, putting money away in a SACCO or even funding your money market fund account as well as investing in the stock market. Its good to note you should have at least three months of your monthly expenditure in form of  savings incase  you loose your current job or incase of any unexpected occurrence .

Its good to note that Savings can also include debt payment as well as having a pension plan .

The Bottom Line

Saving can be very difficult especially considering how life often life throws unexpected occurrences at us but following the 50-30-20 rule, you can have a budgeting  plan and manage your after-tax income more effectively .

Its our hope that you get to enjoy life  but also note having a plan and sticking to it will give you a chance to cover your expenses, save for the emergencies and retirement as well as pay for the activities that make you happy and fulfilled as an individual .

2 COMMENTS

LEAVE A REPLY

Please enter your comment!
Please enter your name here