Do you find it difficult to save systematically each month? Maybe the 50-30-20 technique is a solution for you.
Elizabeth Warren
We owe the 50-30-20 technique to U.S. Senator Elizabeth Warren. She described it in her book “All Your Worth: The Ultimate Lifetime Money Plan“.
It’s a simple and efficient savings technique and a good start if you haven’t started budgeting yet.
How does 50-30-20 work?
50% for necessary expenses
You allocate half of your budget for necessary expenses, your living expenses. This includes your rent or mortgage loan payments, utilities such as electricity/gas/water, telephone, internet, your groceries, medical expenses, car expenses and insurance.
If you are in debt, you can also include the monthly minimum payment(s) in this section.
If you are spending over 50% on necessary expenses, you will have to cut back or get yourself a cheaper lifestyle. For example, a smaller car or even sell your car, a smaller home, saving on groceries, and so on.
30% for joy of life and extras
In the ‘30%’ section you budget the extras for relaxation, such as dinner or going out with friends, a visit to the cinema, a cultural performance or a membership at the sports club. But also material items such as a new smartphone, home cinema, a game console and books can be categorized here. Budget for travel also belongs in this category.
If you spend over 30% on entertainment, you can also save here. Do you really use all your streaming subscriptions? Do you really need that extra pair of shoes?
20% for saving
Ultimately, reserve 20% of your budget for saving. If you have debt, you can do additional debt repayments.
I also recommend you to first save up an emergency fund. This will provide you with a buffer in case of an emergency, such as a broken washing machine or repairs to your car.
If you have established an emergency fund and there are no debts, you can start investing based on a financial plan.
There is no ready-made solution to keep your budget in check, but the 50-30-20 rule is already a good start!
This info is for informational, educational and entertainment purposes only, and does not constitute financial, accounting, or legal advice. Please do your own research (disclaimer).