Ah, payday – that glorious moment when your bank account does a happy dance.
But have you ever wondered, “What’s next?” How does one ensure that their hard-earned cash doesn’t vanish into thin air?
For many people, their financial journey begins with the management of their paychecks. It’s a foundation upon which they build their financial stability and future. For instance, 50% of Gen Zs and millennials say they live paycheque to paycheque according to a survey by Deloitte.
This statistic sheds light on the financial realities faced by a significant portion of our population. It raises questions about financial literacy, budgeting, and the overall state of personal finance.
This is where the 50/30/20 Budget Rule comes into picture.
What is the 50/30/20 Budget Rule?
The 50/30/20 rule is a popular budgeting guideline that helps individuals allocate their income into three broad categories to manage their finances effectively. It’s a simple and flexible approach to budgeting that provides structure while allowing for personalization based on individual circumstances.
This rule simplifies budgeting by breaking down your monthly income into three main categories: needs, wants, and savings/investments.
Disssecting the 50/30/20 Budget Rule:
(i) 50% – Needs
Needs encompass those expenses crucial for survival and maintaining basic well-being. These fundamental requirements typically encompass housing, utilities, food, transportation, healthcare, and childcare. However, it’s important to note that there is room for personal interpretation within this category.
For instance, when it comes to healthcare, some individuals might prefer public healthcare facilities while some would like to go to private hospitals in search of ‘the best’. Likewise, personal preferences can also affect your needs.
Your needs aren’t just expenses; your needs reflect your individuality.
(ii) 30% – Wants
30% of your budget is typically dedicated to your wants. Wants define your lifestyle. These expenditures that aren’t necessary for survival but add richness and vibrancy to your life. They include activities like shopping, dining out, entertainment, nightlife, and travel.
Wants again vary from personal preferences. One could be a gadget freak and would want to upgrade their phones every year. While on the other hand, the wants of a parent could be something very different – owning a family car.
However, this allocation of 30% to wants often sparks debates. Critics argue that a more prudent approach is to allocate 30% to 40% towards investments and savings, letting your ‘wants budget’ naturally grow as your financial means increase. Nonetheless, if you choose to stick with the 30% guideline for your wants, your goal should be to manage and limit your spending effectively.
(iii) 20% – Savings
According to this rule, 20% of your earnings is allocated for savings. This section focusses on achieving financial goals.
It is usually advised to have at least three months of your earnings as emergency savings. Once you are done with that, the focus shifts onto multiplying your money – Investing.
Once your emergency fund is in place, you can shift your focus from short-term safety to long-term prosperity. While your savings are your financial shield, investing is your tool for wealth multiplication.
Investing is not just a method of multiplying money; it’s a strategy for realizing your dreams, both big and small. Whether you aspire to retire comfortably, send your kids to college, or travel the world, investing can help you get there. It’ll help you in building wealth over time and securing your financial future.
While the 50/30/20 rule of thumb is a popular budgeting approach there are alternative methods that may resonate with your financial style:
The 80/20 Rule: Here’s a more hands-off approach. Reserve a fixed 20% of your income for savings, allowing you the freedom to spend the remaining 80% as you see fit, without meticulous tracking.
The 70/20/10 Rule: This rule is akin to the 50/30/20 guideline, but it divides your budget differently: 70% allocated to covering living expenses, 20% designated for tackling debt payments, and 10% directed towards savings.
These alternative budgeting techniques offer flexibility and tailored structures to suit your financial goals and preferences, empowering you to manage your money in a way that feels unique and effective for you.
In a world where financial challenges can sometimes feel overwhelming, this budgeting approach offers a lifeline, giving you the tools to take control of your financial journey. It’s a starting point for better money management.
Whether you’re eager to grow your wealth or generate passive income, Ashton Gray Investments has the strategies and insights to help you accomplish just that.
Your journey to financial success begins with a single step, and that step starts with us.
About Ashton Gray Investments
Ashton Gray is a vertically integrated real estate investment and development company that has created a competitive advantage that yields higher returns for its investors. With its proven 100% return on capital track record, Ashton Gray is a leader in the private equity real estate arena.