50-30-20: the golden rule to keep control of your money and understand personal finances

50-30-20: the golden rule to keep control of your money and understand personal finances

20% of your salary should be used for savings and investments.

Photo: Nattanan Kanchanaprat / Pixabay

Perhaps you are one of the people who have downloaded an application on your cell phone to improve your personal finances and keep your expenses under control. However, you abandon it on the third day when you realize that you forgot to add the expense of five coffees a week. Does it look familiar to you?

Budgeting and managing finances go hand in hand, but that doesn’t mean it has to be complicated or takes time out of your day. In fact, the best tips for budgeting are usually the simplest.

The 50-30-20 rule is a method that helps you make a monthly budget smartly and easily. It tells you exactly how much you should allocate to your savings and expenses each month.

With a clear vision of your monthly budget, you can avoid overspending and increase your savings steadily, without having to carefully record each transaction.

This is a strategy that can simplify the process of managing your finances and setting a monthly budget. The 50-30-20 rule originates from the book “All Your Worth: The Ultimate Lifetime Money Plan”, written by US Senator and Harvard bankruptcy expert Elizabeth Warren and her daughter Amelia Warren Tyagi.

The plan divides your income into three categories: needs, wants, and savings and investments.

Related: There is a valuable retirement tool that 32% of the population is unaware of

How to use the 50-30-20 rule to better manage your money?

1.- Income

50% of your income you must allocate it to the things you need.

This category includes expenses you make like rent, mortgage payments, food, utility bills, health insurance, and paying your debts.

2.- Needs and savings

20% of your salary should be allocated to savings and investments.

In this section, include all your liquid savings such as an emergency fund, retirement savings and any other investment fund that allows you to have a better retirement.

Related: How to save $ 1 million and retire at 31

3.- Savings and investments

30% of your paycheck should be used for the things you want.

In this category you should include everything that is not considered an essential cost such as travel, subscriptions, dinners in restaurants or even shopping.

Following the 50-30-20 rule will make it easier for you to stay on track to reach your financial goals.

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