The simple 50-30-20 rule to save comfortably. The plan divides income into three broad categories: needs, wants, and savings and investments.
Managing the household finances is a challenge many times . However, applying a certain order from the moment we enter money can give us a perspective of how our finances are and how far we can go.
That’s what the 50-30-20 strategy is based on , a simple rule, similar to that of Harv Eker or envelopes.
The objective is that, from the day we receive income, to know what is the spending threshold that we can undertake in each of the three main items , something that can also serve to identify problems, if we need to earn more money, or cut expenses.
The plan divides income into three broad categories: needs, wants, and savings and investments.
50% of the income must be used for essential needs
This category includes all essential expenses such as rent, mortgage payments, food, taxes, utility bills …
If the necessary expenses account for more than half of our income, we may have to cut expenses or use the other categories.
Another 20% should go to savings and investments
This category includes liquid savings, such as an emergency fund, retirement savings, or ultimately goals of adding money with the idea of not touching it until it is time for your mission.
Experts often recommend having enough cash in your emergency fund to cover three to six months of living expenses. For example, if we are left without work, and that this fund goes ahead of, for example, another type of savings destined to buy a car or make a reform.
The remaining 30%, now yes, for whatever we want
The latter category includes everything that is not considered an essential expense, such as travel, subscriptions, dining out, shopping, and general entertainment.
This category can also include unnecessary improvements: a new mobile even though the current one works, or high-priced clothing.
There will never be a one-size-fits-all approach to managing money at home, but strategies like this can be a good starting point if this is your first time getting closer to controlling expenses at home.