Most of the people who live out there in the world find it a difficult task to manage their earnings. As a result, they end up spending more money than what they earn. This can eventually lead them toward financial difficulties. If you don’t want to end up with such negative consequences, you need to have a solid overall understanding of how to manage your earnings.
Many different methods are available for you to manage your earnings. Out of them, 50 30 20 rule has received a lot of attention. It is known as an effective method to manage your earnings effectively. Therefore, we thought of deep diving into this method and sharing more details about it.
What is the 50 30 20 rule?
The 50 30 20 rule is a process where you are dividing the take-home salary after taxes into three different buckets.
The first bucket will contain 50% of your paycheck. It will go to cater to your necessities. In other words, you will be utilizing this 50% of the money to cater your utilities, food, shelter, clothing and transportation. In fact, you will have to spend money on these necessities on a daily basis.
You will also be able to find the minimum payments that you should pay on your debts under this bucket. They can be called as necessities as well. If you don’t pay that amount, you will end up facing serious consequences. Hence, you need to be mindful about the debt payments as well. This includes the debt that you have to pay on the credit cards, car loan, housing loan, student loan etc. According to the 50 30 20 savings rule, you will need to make sure that you are limiting those payments within 50% of the net income that you are receiving on a monthly basis.
The 30% bucket is designed for the lifestyle choices that you make. It includes entertainment, vacation, pets, hobbies, gym fees, cable packages, cell phone plans and eating out. You don’t really need to go for these things in your life. Without these items, it is possible for you to survive. However, these items will contribute towards the quality of life that you can experience in the long run. Therefore, you need to make sure that you are allocating 30% of the net income to this category.
The last bucket, which contains 20% of your net income should be on the financial properties. In fact, you should be saving 20% of the income that you receive for the future. You still have the freedom to use some of the money that you have in this bucket to go ahead with debt payments as well. However, it is important to keep in mind that this bucket doesn’t contain money that you save for short term goals, such as to go on a vacation. You will need to move them to the 30% bucket. You need to make sure that you are using the 20% bucket in order to accommodate all the long term savings.
What are the benefits of 50 30 20 rule?
Now you have a clear understanding of the 50 30 20 savings rule. There is no rocket science behind this rule. You can simply do your calculations and allocate your net monthly income to the different buckets accordingly. Along with that, you will be able to follow the 50 30 20 budget rule.
While you are following the 50 30 20 rule, it is important to be aware of the benefits that will come along with it as well. These benefits will tempt and motivate you to stick to the rule at all times and experience the positive returns that it can deliver to you in the long run.
1. It can help you to overcome debt
Living under debt can be frustrating. It will subject you to lots of headaches in the long run. Therefore, all the people who live under debt are looking for quick and effective methods to overcome debt. That’s where the 50 30 20 budget rule will be able to help you with that. This rule is designed to help you settle your debt as soon as possible. That’s because you will be able to manage your expenses accordingly.
2. It can help you to retire early
Most of the people are struggling to save enough money for their retirement. If you are one of them, retiring early will only be a dream for you. You will be able to transform that dream into reality with the assistance of 50 30 20 rule. That’s because the 50 30 20 rule will make you save a considerable amount of money in the long run. In order to get the most out of it, you should start following the rule at a younger age. Then you will keep on saving 20% of the monthly income every single month. When you arrive at the age of 50 or 55, you can take a look at your savings accounts and you will notice that you have collected enough money to go ahead with retirement. Therefore, you can proceed with retirement without keeping any doubts or second thoughts in your mind.
3. You can enjoy your life
One of the biggest benefits that you can get out of 50 30 20 rule is that it will create an ideal environment for you to start enjoying your life. That’s because you have enough money in your hands and you have controlled all your unwanted expenditures. Therefore, you will be able to keep appropriate expectations in your mind and enjoy your life like never before.
50 30 20 rule is something that everyone should follow. Whether you have difficulties in managing your earnings or not, you should think about following it. Then you can enjoy the most out of it along with all the prominent benefits that are sent on your way.