How the 50 30 20 Rule Helps Save Money Without Sacrificing Desires
Money – a commodity that speaks only one language, “If you save me today, I will save you tomorrow.”
The barter system is long gone. Nowadays, you need money to buy anything you wish to own. All in all, money is an essential commodity that helps you run your life smoothly. Its value is increasing over time, and each one of us strives to earn more to be able to fulfill all our needs.
Now, the question here is, how did money become so import over the years?
Well, the answer is people’s desire to save wealth for securing their future. In philosophical terms, money is not everything and can’t buy some of the most expensive things like peace and happiness. Still, in the practical world, it is the primary thing based on which the status of any person’s life is evaluated.
When it comes to money, there are many ways to earn it, but one needs to master the art to sustain it. And, not everybody is good with the art of saving money.
Well, if you too fall among the category of people who find it hard to save money, no matter the amount of salary, then don’t worry.
Here, we will shed light on one of the best techniques to help you save money without compromising your wants and daily needs.
So, let’s have some real-time talk now!
The 50/30/20 Budget Rule
Have you heard of it? Or does anyone apply this rule of thumb already for budgeting your finances?
Well, if your answer is yes, then we are already impressed by you, and if it is no, then also it is cool because it’s never too late to start.
So what is this 50/30/20 budget rule?
It is a simple and intuitive plan that helps people attain their financial goals without asking them to sacrifice their wants and needs.
Now, let’s talk about how to save money from your monthly salary by following this highly effective rule.
Evaluate your after-tax income
After-tax income is the amount of money you are left with after paying all kinds of taxes, including local tax, sales tax, income tax, etc.
So, the first thing to do is to calculate your after-tax income, to get a clear picture of how much money you have for real use.
Suggested Reading: How to make money fast
Limit your needs to 50%
Once you are done with calculating your after-tax income, figure out how much money you usually spend on your needs (every month). The list of needs includes anything necessary to live a healthy and smooth life, such as housing, groceries, insurance, and other utilities.
A Tip: You may limit the expenses on your needs list by getting a sofa on rent in Pune, Delhi, Mumbai, or any other city and save your hard-earned money.
According to this rule, one should not spend more than 50% of their after-tax income on their needs. So, be thorough when you calculate the amount of money you spend on fulfilling your needs, and if it is more than 50%, curb your expenses to what you need.
Limit your wants to 30%
Now that you are done with understanding your needs and how much money you spend on fulfilling them, the next thing you must do is consider your wants.
Wait a minute!! Your wants do not mean that pair of Adidas originals, which you’ve had your eye on for a long time now or a trip to Switzerland. Well, these do not mean extravagant expenses.
Your wants are the basic but nice things you enjoy, like your Netflix subscription or dining out. So, while you are working on maintaining a budget, evaluate your wants and see how much money you spend on them. If the amount is 30% of your after-tax income, then it is not a problem. But if it is more than 30%, then you need to cut a few of them out and create a balance by limiting it to only 30% of your after-tax income.
Save the remaining 20% or use it to repay your debts
After you have analyzed and created a budget for your needs and wants, the remaining 20% of your after-tax income should either go directly into your savings or should be used to repay debts.
You may also like 3 ways to budget for maximum savings.
Let’s go through an example of the 50/30/20 rule to get a more precise idea of how this works
Let’s say your after-tax income is 50,000. Now, according to the 50/30/20 law, you must spend 25,000 on your needs (which is 50% of your after-tax income), 15,000 on your wants (which sums up to 30% of your after-tax income), and 10,000 on your savings or paying debts (which is 20% of your after-tax income).
And this way, you will be able to save money from your after-tax income each month, without compromising or sacrificing your needs and wants.
If you follow this one rule, then nothing can stop you from saving money each month and sorting your life financially.
So, apply this simple yet highly effective rule, and start saving your hard-earned money while enjoying life at its best.
Also, if you are already following this rule, please share your experiences about how this one easy-to-apply rule has changed your life, by making you financially stable and secure.