How to learn to correctly distribute personal assets: 50-20-30 rule
To financial situation was stable, not necessarily to make millions. Sometimes it is enough to develop a simple but effective plan, budget allocation or, for example, to use already proven the rule (principle, system) 50-20-30.
If you’re new to budgeting, you need to figure out how to properly dispose of your finances so you do not feel overwhelmed. After all, you need to not only organize everything, but make the decision on how to spend your salary. You will not be able to rely on the experience of other people because your income and expenses can vary significantly.
But there’s good news: you don’t need to make complex spreadsheets with countless cost categories that do not need to be a financial expert to understand how much money you can spend. You just need to follow a simple effective principle 50-20-30.
So, what is this rule?
A very valuable principle of financial allocation 50-20-30 easily help you to allocate budget using three categories of costs:
- 50% of your income should go to essential expenses: rent (rent), utilities, food, transportation;
- 20% of income is your savings, investments, or payment of debts (if you have them);
- 30% of the income necessary to spend «on yourself»; this is the so-called flexible spending: that is all you want, but that is not so necessary (for example, travel, cinema, restaurants).
The financial planner Eric Roberg believes that the essence of this rule is to take action and use the system, which will help to remain consistent in the management of their funds on a monthly basis. This system helps to ensure that you are covering your expenses, be responsible for your future and can enjoy life today.
How to implement the principle 50-20-30 in your own life?
Find out what is happening with your expenses. First, calculate your salary, because that’s the amount you bring home monthly. It’s your income and it should be based distribution.
Next, track your spending. This means that you have to count every penny, from the rent and ending the purchased coffee which you drink on the way to work. Then decide which of the above written categories: what you need to spend money first of all, financial goals and flexible costs. And calculate how it will look in principle 50-20-30 equivalent in your currency. If you spend a lot on things that you want, but they are not as important to you, then it’s time to reduce this list.
Why 50-20-30 work?
With this system, you pay the bills, constantly save, and have funds that can easily spend on their own needs. And yet — it is very simple for beginners, and all actions in this clear and will help you achieve financial stability.
In addition, the rule requires some flexibility. You can slightly change the proportions to make it work for you.
«Your personal budgets different from each other, so we cannot say that this is the exact percentage distribution,» — says the aforementioned Eric Roberg, financial planning specialist, which specializiruetsya on helping professionals and entrepreneurs with «Beyond Your Hammock».
So, if you still haven’t found a common language with your funds, try, use the distribution rule of Finance 50-20-30. Maybe it will be a good friend to your budget.