How to improve your finances with the 50:30:20 budgeting rule

Today, I want to talk about one of the crucial habits that have helped me on my journey, BUDGETING!. I cannot begin to tell you how important this is if you want to attain financial freedom.

There are quite a number of budgeting methods out there, but I want to re-introduce you to a simple and powerful budgeting plan. The 50:30:20 Budgeting Rule!

If like me, you don’t have the patience for tracking your spending in minute detail, this budgeting plan is for you. The 50:30:20 Budgeting Rule is simply dividing your income into three main categories of expenses: 50% for your needs, 30% for your wants, and 20% for your investments.

Let’s assume you earn $2,000 per month. $1,000 goes to your needs, $600 goes to your wants, and $400 goes to investments.
Sounds easy right! Yes, I agree!.

The next little challenge is determining what fits into each category. Here are some general guidelines to follow in determining what fits into what category:

The first step is to “pay yourself first” The savings/investment category is money you set aside for your future. Start by building an emergency fund, then saving for a down payment on a home, school fees etc and then investing for retirement. One of the things that helped me tremendously when hard times came was my frugal lifestyle. I always saved/investment more than 20% of my income. I would increase my savings/investment percentage as my income increased. Sometimes, I go as high as 50% depending on my need for the month.

Next, your Needs. The basics for survival. They include things like housing, utilities, transportation, health care etc.

Finally, your wants. Those non-essential nice to haves. Those things we just love to splurge on like dining out (I swear, it feels like a NEED), cable TV/internet subscription, vacations, gifts and other luxuries. Discipline yourself to reduce the percentage you spend on these and increase your savings/investment percentage.
It is very important that you don’t confuse your wants with needs. What I ask myself is… can I live without this thing? If the answer is YES, it’s a want! So I put away my wallet jejely and head for the kitchen to replace that take-out order with healthy wholesome stir-fry.

Unfortunately, the 50/30/20 rule won’t work for everyone because of individual circumstances, such as residing in an area where the cost of living is high. Keep in mind, though, that you can adjust the rule for your particular needs by changing the percentages to match your personal situation and financial goals.