We should learn 50/30/20 Rule.We all have a different relationship with money. Some of us see it as something exciting and a great tool for goal-setting, some of us see it as a necessary evil, and some of us would rather not think about it at all.
No matter what your opinion is on money, chances are, you have one. And whether we like it or not, money is a necessity for the world that we live in today. This is why it’s important to try to develop a healthy relationship with money.
Luckily, there are a few basic guidelines that you can follow to make sure that you have money ready for all of the necessities that life calls for. One of the most popular, straightforward, and easy-to-follow tools is something called the 50/30/20 rule.
If you’ve never even heard of this but are a fan of learning how to better manage your money, keep on trucking and we’ll explain what it is and how it helps.
What is the 50/30/20 Rule For?
The 50/30/20 rule is a basic guideline that financial experts have come up with as a good proportion when considering where your money should end up. It entails 50% of your income going to regular monthly expenses, 30% of your income going to incidentals or things you just want, and 20% of your income going into savings.
It’s basically just an easy way to divide up funds responsibly.
The first thing that you should put your saved money towards is debt. Between student loans (yikes) credit cards, and unfortunately, even medical debt, most of us are carrying along at least some amount of debt. This debt can affect your credit score and compound interest over time, meaning the longer we put it off, the worse it gets.
Consider using your 20% savings to pay off debt first so you can get that out of the way.
When you’re in your 20’s just barely scraping by, retirement can seem like some far-off pipedream. But eventually, we all exhaust our bodies and have to stop working. That’s why it’s important to start saving up for retirement today, no matter where you are in life.
Did you know that most Americans don’t even have a savings account? Many of us are one emergency away from financial distress.
Though you can’t see into the future, you can plan ahead that something will eventually cost you some money. Whether it’s your trusty car suddenly giving up on you, a flood or hail storm that damages your house, or a last-minute wedding that your friend needs you to be the maid of honor for (thanks, Stacey), you have to expect the unexpected and save up accordingly.
Just to reiterate, the largest portion of your paycheck will be going to basic living expenses. This includes non-negotiables like rent, bills, food, and any other expenses that are always present in your life.
30% of your income is going to go toward one-time purchases or incidentals. Say you need a new dishwasher or the kids have outgrown their socks once again, you will take the 30% of your paycheck to pay for these things that can’t be put off or saved up for.
The smallest portion of your income but an incredibly important one, the final 20% of your income will go into some sort of savings account which you can tap into down the road when you most need it.
Remember to Be Money Smart, But Try Not to Stress Too Much
Try to follow this 50/30/20 rule for more financial freedom, but don’t worry too much about getting it perfect the first time.
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