When you’re thinking about your finances, are you thinking critically? Taking control of your finances isn’t as hard as you might believe. The first step is making a financial plan that is both sensible and easy to remember.
That’s where the popular 50/30/20 rule comes in. Let’s take a look at this time-tested advice and how it can help you take command of your personal finances.
After taxes, fifty percent of your budget should be earmarked for your “needs”. That’s the stuff you can’t help but spend money on, no matter how good you are at budgeting: things like your car payment, your rent or mortgage, utilities, and minimum payments on your debts.
If that’s adding up to more than fifty percent, then you’ve got a problem. Push the numbers however you need to, but one of the lines must move: you either need to be paying less or making more money. This is easier said than done, but it’s a good goal to aim for. Downsizing can help in one regard while finding a new job can help with the other.
Once your “needs” are taken care of, you get to the fun part. Take thirty percent of your paycheck and put it to one side. Go wild with that money. Get the new iPhone, buy a ton of video games, get new clothes, go to the nicest restaurant in town. Seriously, it’s important that you spend this money on stuff you really want.
Having a good relationship with your spending, up to that thirty percent, is critical to making you feel alright about this next part.
The last twenty percent of your paycheck needs to go straight into your savings account. Don’t even look at that money. As far as you’re concerned, you don’t have that money. This money should only be tapped in an absolute emergency. Any cuts you need to make in spending should come from that thirty percent portion, though ideally, you should keep all three of these levels stable.
That’s the 50/30/20 rule, in a nutshell. If you can keep hitting those targets, you’ll have command of your finances in no time. And, you’ll probably be pretty happy about the ever-growing savings account this will create for you.