How to Make Better Financial Decisions and Save More by Using the 50-30-20 Rule


Some people feel intimidated by saving for retirement because it sounds overwhelming. How can you put money toward savings when you feel like you can barely pay your monthly bills?

But saving doesn’t have to be complicated. By instituting a simple plan, you can make sure you cover all your bases in the present while still getting ready for the future. Consider trying the 50-30-20 rule.

What Is the 50-30-20 Rule?

The 50-30-20 rule is a budgetary approach that accounts for three major areas:

· Needs.

· Wants.

· Savings.

The rule advises you to break down your monthly spending into these groups, which will make it easier to track your financial goals.

Put 50% Toward Needs

The largest chunk of your income should go to needs. These are the non-negotiables, things you can’t do without. Think:

· Rent or mortgage.

· Groceries.

· Transportation, including car payments.

· Utilities.

· Insurance.

They eat up a huge portion of your budget, and they’re unavoidable. This also includes debt repayments, which may include your car or monthly credit card payment. Think of “needs” as the things you can’t get out of. They are separate from things you want. You need to eat — but you don’t have to eat out. You can go to the grocery store and buy food for less than purchasing a meal at a restaurant.

Put 30% Toward Wants

The trickiest part of budgeting this way is probably determining what’s a need and what’s a want. For instance, you can probably figure out that Starbucks drinks and your Netflix subscription are wants. But what about a vacation? You need time away from your job to guard your mental well-being, so should it really count as a “want?”

Probably the best way to consider wants is to look at what it takes to “upgrade.” For instance, buying that restaurant meal instead of a meal you cook yourself from the grocery store is an upgrade — a want.

Put 20% Toward Savings

Anything you save toward goes in this category, including your retirement, your child’s college savings plan or your emergency savings account. You should also include any debt payments you make beyond the minimum, such as adding $50 to your car payment every month.

Activating Your Budget

Before you can put the budget into practice, you need to do some calculations. Find your monthly salary after taxes. Then calculate how much falls into each category. So, for instance, if you make $3,000 per month after taxes, $1,500 would go to needs, $900 would go to wants, and $600 would go to savings.

You may need to play around with your budget. Can you eliminate some wants? For instance, maybe you subscribe to Hulu, Netflix and HBO Max. Get rid of two streaming services and keep the third to streamline your budget. Reduce the number of times you eat out each month. Find ways to save money on your utility bills.

Consider prioritizing debt payoff if you have a lot of it or you borrowed with a high interest rate. A credit card with a large balance and 18% interest accruing should be a priority you also consider a savings investment because it will save you money over time.

Need help implementing your budget or have other questions about saving? Contact Jay. He’s happy to answer your questions and help you get on the right track.

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