When creating a budget there are many ways to begin. Some people make a list of their income, expenses and wants. They balance their needs according to how much they earn. But is there a universal rule or a better way to make a budget? The short answer, yes there is. Today we will discuss the 50/30/20 budget rule and how you can use it to create the best budget for your needs.
What is the 50/30/20 budget rule? The rule is simple, you calculate your needs, wants and savings according to the formula. 50% goes to needs, 30% goes to wants and 20% goes to savings. Now you might think that 30% wants are a bit much and while the 50/20/30 rule is not a must it is a great guideline to get you started. So, what falls into each category
This one is all your monthly payments or obligations. Rent, food, car, insurance and all the payments you would usually find yourself having to pay. Phones can be in this category as well as transport costs if you do not own a car. The rule in this category are things that you absolutely cannot go without. So no Netflix or DSTV. Those items are more luxury and can go into another category
Here is where you slot in all your extras. Netflix, Hulu, that super-fast internet or your monthly take-outs. This category contains all the luxury items that you want rather than need. Clothing could also be put in this category with special date nights. You do not have to keep this at 30% but it is a good indication as top what amount you should not go over.
Most people think 20% is a lot towards savings but this is not only your rainy-day fund. Any contributions made to a retirement fund or extra payments on your credit card are counted towards savings. It is always a good idea to have something building towards your future, whether it is a small savings plan, getting rid of debt faster or even saving for larger assets. Most people only start thinking about all the money they could have saved when they need it. Start saving today so that you don’t regret it tomorrow.
United African Stokvel is always looking for ways to help our members. This blog is intended to help our members think about their finances in a different way. This information is not intended to be a substitute for a financial advisor, you should consult with a financial advisor before relying on this information.