I can bet you have heard of the 50/30/20 rule and its core advantages. The amazing thing about this rule is pretty much summarized by lots of articles, videos, etc. With this article, we will be looking at the origin of the 50/30/20 rule. We’ll look into how you can start implementing it today. Additionally, the 50/30/20 rule will help you manage your money.
Many people do not think something should be changed if it is presently working. If this was the case, then, business would only need time to succeed. However, the reverse is the case. Most businesses close down in a few months or years. This is mostly because they get stuck in the old way of doing things without looking ahead of themselves. Today, a lot of businesses have been pushed out because they didn’t foresee the future of the internet and digital marketing.
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How can this be applied to your personal finance?
We are going to compare this outlook with your personal finance too. If those businesses failed as a result of not embracing change early on, how about your finance? You can’t continue to live in the foolhardiness of going to school, getting a job, and retiring early or late. And everything will be fine. Sorry, not anymore.
When you are managing money, if you do not plan for your future, instead of trying to get by in the present, that generational wealth you envisioned won’t be possible.
Undoubtedly, the 50/30/20 rule will help you work around your budgets without fearing your monthly survival routine. And it’s very easy to implement with just three steps.
Count all your worth
Unquestionably, it’s all about balance. Money follows the same idea that is captured in food(balanced diet). There is an explanation to why you can live on $40,000 a year, and why you may not be able to live on $140, 000 a year.
And it has nothing to do with the fact that you would be gambling away if you earned the second amount of money. It’s only because you haven’t found this balance yet. When you do understand this 50/30/20 rule, you will be able to pay off all your bills, and still, save towards your financial future.
To have the balance, you have to separate your spendings into three categories;
- Must-haves: The things you need
- Savings: The money you save towards debt
- Wants: The stuff that is just for fun.
It’s simpler than a diet in the sense that there are three categories only. Once you have your money balance figured out, your financial worries fade away. This is because you have control over it. You know how much is coming in, how much you are using. In addition, You know the specific percentages that go into those three categories.
Must-haves
These are your basic bills, for example, mortgage, rent, car, phone bills, and health insurance. In the olden days, paying those bills wasn’t daunting at all. They had no credit card, probably no student bills, and low mortgage rates. Recently, the dynamics have changed. It has become increasingly difficult to pay off the basic bills as the day goes on.
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If you are still struggling to pay off your bills. Also, if you do not truly know where your money goes. You need the 50/30/20 rule in your life. Take the 50/30/20 rule and apply it to your money. 50% should go to your must-haves, 30% to your savings, 20% to your needs. This is a perfectly balanced formula.
To use the 50/30/20 rule to your advantage, you need to escape the thinking trap. This leads us to step two.
Re-engineer your thought pattern
You need to learn to re-engineer your negative thought patterns on money. You have to stop playing the blame game and pointing fingers at everything except you. We also blame the economy, our parents, our children, our age, our jobs, our bosses, etc. The moment you stop pointing fingers, you will start thinking logically about your finances. Subsequently, and this will help you think of how you can apply the 50/30/20 rule judiciously in your financial life.
Read Also: How to hack your brain and get excited for savings.
So, look at your income, and discover how to split them into three categories. Figure out ways by which you can balance it. Indeed, you can start with any percentage, instead of 0%. Even though it’s small, if you consistently build it, it will reach the final goal.
Third step
Count your dollars not the pennies
We might have learned to buy in bulks and not pennies, but is that helping you? Clearly, you can just shave off a few hairs here and there off your expenses instead. You can shop around for insurance. You can get a cheaper place or get a roommate.
These choices are going to have a big impact on your money and expenses. All you have to do is look at your goals, start easy, look at your must-haves, and see what can be reduced. Shop for cheaper alternatives for things like your phone bills. Furthermore, start reducing the bigger expenses slowly. You can sell your car, and buy a greener one, that will save on fuel and maintenance.
