The 50-20-30 Rule

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A lot of people out there are trying to figure out how to get ahead right now, and there’s a lot of financial advice out there for anybody looking. One such popular piece of advice is the 50/20/30 rule. This article is going to overview what the rule is, and how to put it to work for your financial success.

In terms of why you should care, consider where you are right now versus where you want to be. If you’re like most of us, there’s a gap between those two ideas, a gap you’d probably like to close at some point in your life. The reality is that nothing changes without planning (at least nothing that good!).

It can be tempting to just let life go ahead and dictate your budget to you, but that’s a mistake. By putting a rule in place, like the 50/20/30 rule, you’re taking control of your financial future in a way that will mean something to you as you see those numbers grow.

This begins by educating yourself. The more you understand, the more likely you are to start a new habit. The better you are at starting that new habit, the more encouraged you’ll be to stay disciplined. This isn’t always an easy track, but it is one that’s absolutely littered with rewards of financial stability.

So, let’s get started.

The 50

The plan begins by setting half of your income aside for expenses. Expenses can include bills, utilities, transportation costs, and housing. This category should be limited to the essentials, and it shouldn’t exceed 50% of your income. If it is, consider adjusting how you’re living however possible to ensure you’re living adequately within your means.

The 20

The next step is a little more exciting, and is really where you’ll start to see a change in your financial future. Take 20% of your take home pay and save it. This could be in the form of emergency funds, savings plans, or even debt repayment options, but it is meant to be investing in more capital for later. Remember, these savings can be indulged in guilt free because you’ve already taken care of your essential expenses.

The 30

The last category is your ‘discretionary’ spending. This includes anything you didn’t need but merely wanted. That being said, you can want to invest, or continue to save, or to take on luxury items on your bills. Whatever you choose to spend it on, be mindful that this is the money you have full control over where it’s going.

The more surplus you have, the bigger this number will be, but you should never be spending more than 30% of your income on luxury choices.

Conclusions

If you’ve been following along so far, you now understand the 50/30/20 rule. You’ve taken care of your expenses, your savings, and your discretionary spending, and you’ve identified which areas are more flexible. Remember that discretionary is your wiggle room, and use it wisely.

You should never be spending more than 30% at your own discretion, and your expenses should not exceed 50% of your income. These percentages are meant to act as a guideline to living a balanced budgeted lifestyle.

This will change the way your financial future looks. It will enable you to save for the future, plan for retirement, and think consciously about where your bottom dollar goes. This is a lot more empowered than a lot of people get with their money, so if you’ve gotten this far – well done! Just keep in mind that planning is only half the battle, and lock down hard on that discipline.

You are striving for something more than what you have, and the 50/20/30 rule may just be the way to get it!

 

 

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