Managing Your Money Using the 50/30/20 Rule
Are you ready to watch your money grow this year?
What if I told you there is a way you can exponentially grow your money this year, would
you be interested?
Well if you are make sure you watch this entire video, because we will be talking about an
amazing rule, that will help you achieve your financial goals this year.
Today we are talking about the 50/30/20 budget rule.
I know you have probably heard or maybe come across this rule before, and you might even
know a thing or two about this rule.
But, in today’s video, we will explain exactly what this budget rule means, how to use the
rule, and what not to do so that you can meet your financial goals.
The 50/30/20 rule happens to be one of the best and most popular tools for people who
don’t have time to track all their spending, but want an easy way to manage their expenditure,
save money and control their money.
The rule works like this; it requires you to divide your expenditure into three categories.
• Your Needs • Your Wants
• And Savings or debt But before we continue with the video, are
you a subscriber?
If not, please hit the subscribe button and the bell icon to get notified whenever we
post.
Now let’s dive into the video.
To help us illustrate this rule, I’d like you to say hello to John.
John’s an average guy who makes $4500 a month after-tax.
Using the 50-30-20 rule, John will need to divide his money like this.
50% of his money which is $2,250 will go into his needs, 30% which is $1,350 will go into
his wants and 20% which is $900 will go into his savings, or paying off debt.
Just like John you too will need to divide your income into those categories.
Simple right?
But let’s look at it a little closer.
Step One: Limit Your Needs Needs are things you can’t live without.
These include things such as housing, health, transportation, utilities, food, paying off
debt, and the bare minimum for clothing, shoes and other living supplies.
Only include items you can’t survive without in this category.
If you don’t have a budget this would be the ideal time to create one.
Carefully analyze what you spend your salary on each month within this category.
Warren and Tyagi, who are financial experts say this category should not exceed 50% of
your monthly income, if it does, then something is wrong!
If you do however spend more than 50% of your paycheck on your needs, don’t panic.
All you need to do is carefully evaluate what you spend your money on each month.
A good rule of thumb is to track your expenditure so you can have a good picture of where your
money goes.
Once you know where your money is going, adjust your needs by reducing unnecessary expenditures
or find cheaper alternatives.
Once your budget matches the 50% limit, you can now proceed to the next step.
Step Two: Define Wants Now a whole 30% of your pay cheque going towards
your wants may sound like a whole lot of money right?
You may be picturing a nice pair of shoes or that new iphone that got released, the
other day.
As nice as all those things are, we are not talking about buying your deepest desires.
By Wants we mean expenses you can opt out of spending on but your life would be harder
without them.
I’m not sure your life will be any harder without that new phone, but you might find
it hard to communicate without a mobile data plan.
This category should include things like, your internet plan, data plans, home cable
bills, mechanical not cosmetic repairs to your car and so on.
I bet you now get it!
Sometimes it may be hard to distinguish between needs and wants.
But the rule of thumb when it comes to defining a want is by asking yourself if you can live
without it, and if you can then it’s most likely a want.
Now the final step; Step 3: Save Up
The final 20% of your pay cheque should go towards your savings and paying off debt if
you have any.
This money can be used as an emergency fund, a deposit for a home, for investing or savings
for retirement.
If you feel as though that 20% isn’t enough, you can transfer more money from your wants
list into this account.
Now, let’s talk about the types of debt that should be included in the 20% category.
The only debt that should go into this category is that which is above the minimum required
payment.
For example, additional credit card payments, or extra payments on mortgage to clear your
debts faster should go into this category.
The minimum payments on debt should definitely go towards the needs category.
The reasoning behind this is that the minimum required payments are compulsory and failure
to pay them would cause adverse effects on your credit status; something you just can’t
live with.
The 50-30-20 rule is great because, it helps you track your expenditure easily, having
just three categories creates a structure that is easy to follow and helps one to focus
and manage money better.
It’s less detailed making it ideal for individuals who have busy lifestyles and minimal time
available in a day.
The rule works really well for people within the lower income brackets, between $100 - $6000
It’s however not ideal for high income earners because they would be forced to spend unnecessary
money on needs.
The 50-30-20 rule has helped many people get their finances on track.
So many financial experts swear by this rule.
Many people who have been in horrible financial ruts have made it through by following this
guide accordingly.
You too can be one of them if you apply it today!
Well, that’s it for today folks.
We hope you enjoyed the video.
If you’re still here then I bet you enjoyed it!
Don’t forget to give it a thumbs up and to add it to your saved playlists so you can
always review it when you need to.
Thanks for watching!
And as always I will see you in the next one.