Saving Money 101
The best way to save money is to live on a set budget. Whether you are living paycheck to paycheck or you have some “fun” money left over each month, knowing where your money is going will allow you to see how much you can save each month. If you are new to budgeting, managing your money may seem complicated and overwhelming. You not only have to be organized, but you must make challenging decisions about how to spend your money. But there is good news for you. You don’t need fancy financial apps on your phone or extensive spreadsheets with dozens of categories of spending to see where your money is going. You simply need to follow the 50-20-30 rule!
The 50-20-30 rule assists you in building a budget by using three spending categories.
- 50% of your income should go to living expenses and essentials including rent, utilities, groceries and transportation.
- 20% should go to savings, investments and debt-reduction payments.
- 30% of your income should be used for flexible spending. This includes everything you buy that you want, but don’t necessarily need such as travel, going out to movies etc.
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Remember that the percentages for essentials and flexible spending are the maximum amounts you should spend. If you use less income in these categories, you will have more to put into your other financial goals.
Here is how to start the 50-20-30 budget. First, determine exactly how much money you bring home each month. This will be the amount on which you will base your 50-20-30 split. Then track your spending. Every penny of it, from your rent payment down to the coffee you stop for on the way to work in the morning. As you are analyzing your spending, split it into the 50-20-30 categories. Once you see what you are spending where, you can make the needed adjustments to ensure you are falling into the 50-20-30 parameters. If you find you are spending too much on things that you want, but don’t need, that’s when it is time to cut back. The 8 Best Expense Tracker Apps of 2019
The 50-20-30- rule works because it provides a simple way to track your spending so that you can pay your bills, add to your savings and have money left over for fun stuff. It keeps you on the straight and narrow so that you can begin to meet your financial goals. If you stay the course, you will eventually achieve financial stability.
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