Saving your hard-earned money is a difficult task many people struggle with their entire lives. An easy way to get on the path of financial security is to try a variety of saving practices. In recent years, one of the most popular ways to save money is the 50/30/20 budget rule. The practice comes from Senator Elizabeth Warren’s book, All Your Worth: The Ultimate Lifetime Money Plan. The idea’s premise is that once you remove taxes from your pay, 50% of a paycheck should go to your needs, 30% goes to your wants, and 20% go to your savings.
Needs (50%)
Under this budget plan, the majority of your paycheck will go to your important monthly payments; 50% of your paycheck should go to the necessities you need to survive. Payments for your rent or mortgage, car, groceries, student loans, insurance, health care, debt, gas, and other utilities go under this category. These are needs - monthly payments for your Netflix account, internet, cable, and other similar payments do not fall under this category.
Wants (30%)
Now that you have the most important payments covered, you can now have some fun with the money you worked hard for. Your wants may include sporting events, going to the movies, eating out, new clothes, buying a new car, and other entertainment opportunities. 30% of your pay should go toward your wants. This will keep you from going overboard and blowing all your money on things you don’t really need.
Savings (20%)
This last category may be the lowest percentage, but it is the most important in the long run. 20% of your earnings should go in your savings account. Consider using your savings account toward emergency funds, stock market investments, retirement, and other long-term goals. We recommend putting money in your savings after you pay for your needs - this ensures that you’re putting a full 20% in there.
Financial planning doesn’t have to be a chore, and you can still have some fun while being responsible. The 50/30/20 budget rule will set you up for financial success!
