Have you tried in every way to wipe your spending and not buy more than your money can afford, but still have not succeeded? Well know that with the rule 50 30 20 you have a simple and efficient way organizing your expenses.
And the best part, without neglecting your essential needs, your purchases according to your lifestyle and that percentage destined to your financial priorities.
According to SERASA economic indicators 62.6 million UK citizens present some active debt until March 2021, which represents about 30% of the total population.
If we remove financial dependents (such as children and others) from the account, number is really alarming.
These data show that the UK residents does not have financial education and we don’t know how to manage our own money!
In view of this, we thought it best to introduce our readers to the rule 50 30 20. An easy and accurate way to control the pocket and not fall on the list of default.
Next, you'll read:
- What is the 50 30 20 rule ?;
- How to establish monthly expenses;
- Stipulate fixed expenses;
- Select variable expenses;
- Define your financial priorities;
- The flexibility of the 50 30 20 rule;
- The benefits of this rule;
- How to apply this financial organization rule ?;
- Keep your balance.
Follow our article and find out how to keep your financial health in balance.
What is the 50 30 20 rule?
Rule 50 30 20 is a system of organization of personal finances based on percentages.
This is a method of financial organization that falls within the so-called pocket rules, i.e, can be applied by everyone who wants to achieve financial autonomy, regardless of social class and level of education.
Calm down, don't be scared, it's not because it's a system that creates percentages for expenses which is difficult to apply. In fact, this strategy is great because can be used by anyone, regardless of social class and monthly income.
That's because with the 50 30 20 rule you can to view where the money is going and to specify what expenses are really needed.
The proposal is that 50% of the family or personal income should be allocated to essential expenses. Already 30% of all the money that comes in goes to the variable expenses, those that guarantee your lifestyle. And the remaining 20% is reserved for priorities.
How to establish monthly expenses?
To define your expenses and the specific percentages for each of the three expense classifications of rule 50 30 20, you need to know your net income and what your needs and wants are based on your lifestyle.
More than that, you need to determine what your long-term goals and objectives are in order to make a monthly financial organization that fits your personal expectations.
Next, let's specify each of these expenses and discuss strategies to make the 50 30 20 rule work.
Stipulate fixed expenses
Rule 50 30 20 stipulates that 50% of monthly income is for fixed expenses, those that are considered essential.
In this way, the first step towards financial health is to define which of the monthly expenses are really essential and which are expendable.
This first stage is the most painful, we all know how hard it is to get rid of something important to us, but that is not essential for survival.
Although it is not easy, the only way to put your financial life in order is to limit your spending.
Then, enter the detachment mode, face your boletus and reflect: which of these accounts are really essential?
They are for you to use 50% of your income.
Although you can choose what is really essential in your life, in the rule 50 30 20 are considered indispensable fixed expenses:
- Housing (includes rent, property tax, condominium, financing);
- Internet (it is already considered indispensable, mainly in the context of social isolation due to the pandemic that still extends in 2021);
- Hygiene and cleaning products;
- Cooking gas;
- Health (many treatments and medicines need to be paid, but if you want to save money, it is worth checking the possibility of using SUS services).
Thus, anything that sets up a fixed expense in your month, but is not on that list, may well not be considered essential and does not enter the 50% account under the 50 30 20 rule.
Select variable expenses
Anything that is not considered essential will fit into variable and therefore expendable expenses.
We move on to the second step of the 50 30 20 rule, in which you will fit all the rest of the accounts, the non-essential ones, into 30% of your budget.
For that, have no doubts that you will need to give up some spending and shopping.
Look at your bills and credit card bills, look at yourself, your family and your routine and decide: which of these services and products do i really want to keep and can i pay with 30% of my income?
Variable expenses are considered:
- Cable TV subscriptions;
- Streaming subscriptions;
- Entertainment game packages;
- Beauty services and products;
- Club membership;
- Gym fees;
- Everyday treats;
- Lunches and dinners in restaurants;
- Purchases of new electronic devices.
These are some of the expenses that fall under the lifestyle spending. Of course, some of them you do not want and need not exclude from your life.
But at this stage you need to realize how much money corresponds to 30% of your income, and then you must select which of these expenses do you intend to keep.
Define your financial priorities
Now 20% of the rent is left over, which you must reserve for invest in the future.
To know what to spend that remaining amount on, you need to have your life goals well defined, only then will you be able to identify exactly where to put that money.
In this step, the 50 30 20 rule requires you to define an investment, depending on your short and long term demands. Here are some examples:
- Emergency reserve;
- Debt settlement;
- Opening a business of its own;
- House maintenance;
- Car maintenance.
Selected the expenses to which you will direct your net income, it is possible, finally, have control of your finances.
The flexibility of the 50 30 20 rule
The financial organization really needs to go through a process of detachment. No doubt, it is necessary to stipulate the spending criteria and ceilings and rule 50 30 20 presents an option on how to do it.
Still, it is important to make it clear that you can adjust these limits depending on your reality. It is possible, for example, to allocate 20% to variable spending and 30% to spending on financial priorities.
This can be more effective if you have a very high active debt, or even if you want invest in a business whose expenses exceed the 20% stipulated.
In addition, 50% of income does not always have to be reserved for essential expenses. If you do not pay rent or condominium, for example, it is possible that your spending margin is less than 50% of your salary.
The interesting thing about the 50 30 20 rule is exactly that: you can set the proportions according to the features you have, based on what is real in your financial life, without creating fanciful goals and expectations, or rather, that have nothing to do with your life reality.
How to apply this financial organization rule?
In addition to selecting what to spend, you need to know how to introduce and how to keep the rule working in your lifemonth by month, creating long-term stability.
So, follow these steps:
1. Calculate the percentages
To find out how much, in reais, each percentage is, you need to identify the value of your net income.
That is, of your total salary you need to deduct payroll deductions, taxes and bank fees.
For entrepreneurs this task can be a little more laborious than for CLT workers, but without performing this calculation it is impossible to visualize what your monthly profit is, in fact.
Thus, it is important to know what amount enters your free account so that you can manipulate as you like. From the moment you have this information, it is possible to know the corresponding value for each percentage.
2. Use a financial manager
There are applications and platforms that automate spending control. Some internet banks already show the monthly graph of how much you spent and where.
From there, establishing the boundaries between essential spending, variable spending and financial priorities is much easier. After all, you will see, in real numbers, what is the capacity of action of your net profit.
3. Do not go over the first roof
Although the rule is flexible, it loses its efficiency if you spend more than 50% on essential expenses.
You can adjust the first limit of your personal income always for less!
That's because spending more than half your salary on essential expenses means that there will be very little left over for the other two categories. Thus, the financial balance for which rule 50 30 20 applies is lost.
4. Prioritize overdue debts
There is no point in saving money in savings and creating reserves if you have debts to pay. Before saving, keep up with your bills.
After all, financial health is just about that: do not create future plans without resolving the pending issues of the past.
Also know the relationship between financial health and physical health. The article presents important tips for those who want to have balance in the bank account without losing balance with the body.
Keep your balance
Even if these are times of crisis, keep your balance. If we think calmly, it is not difficult to understand that in every moment of crisis a balanced posture is even more important.
This is no different when it comes to financial crisis. Keep your profits and expenses balanced it is an attitude that defines all other fields of your daily life and your future.
The 50 30 20 rule is exactly about this: ensure a balanced and healthy financial life.
We hope you enjoyed our tips. If you did not find all the information you are looking for here, for sure other articles from our blog will be able to complete their search.
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