Let’s talk 50/20/30 – How will it help you save?



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Recently Senator Elizabeth Warren made the 50/20/30 rule a popular way to manage your money. It’s all detailed in her book “All Your Worth: The Ultimate Lifetime Money Plan”. And, it’s not too difficult to apply it to your own money – no matter how much you have available.

The basic rule is to divide your income into the following allocations:

  • 50% on the needs
  • 30% on wants
  • 20% into savings

 

What Are Needs?

These are things that you have to pay for. The bills that are a must. These include rent or mortgage payments, car payments (insurance, taxes that type of thing), groceries, health and home insurances, your minimum debt payments and utilities. Costs that are linked to your business like a business bank account, motor trade insurance, tools or products used.

This category absolutely does not include take-out food, coffees from a coffee shop or things like Amazon Prime or Netflix.

 

What Are Wants?

Things that you spend cash on that you don’t really need – but you want. We all have them! Dinners out, movies, subscription services like Netflix, NOW TV, and Hayu. New clothing or handbags, when you don’t really need them, electronic goods that aren’t linked to your home business, and pricing up in the supermarket to the more expensive steak or branded biscuits. It is simply making upgrades where you don’t really have to.

The ‘wants’ make your life more enjoyable, but they aren’t the thing you need to pay for.

 

Savings

If you have broken down your income, you should know how much of your outgoings fall into wants or needs by now, leaving you with your possible savings.

20% should be able to help you start saving pretty well. It might go into a bank account, or it may go towards other things. The key here is that the 20% can be split over multiple elements. IRA contributions, mutual funds, a separate savings accounts, mutual funds – these all count.

So do paying higher amounts off your debts, if you have any. Minimum repayments are of course in your needs, because they have to be paid no matter what, but here you create to the opportunity to give more to those debts. The more you pay off, the less interest you will have to pay, meaning that this is a saving in the long term.

 

Key Notes

When you start working through the things that you need to pay for it is also the perfect time to start getting in touch with comparison sites and companies so that you can trim even more money off what you’re already paying. If you find that your debts are taking up more than 50% of your income, then you should consider talking to a debt management company to help you arrange lower and more manageable repayments.

The 20% that goes into savings could be a small amount, and works with what you can afford.

If you need to find other places to cut back, then the ‘wants’ will be the best place to start with.

But don’t leave yourself with nothing fun at all.

 

The post Let’s talk 50/20/30 – How will it help you save? appeared first on MoneyMagpie.



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