Millennials, if there’s one rule you want to know about when it comes to budgeting, it’s the minimalist budgeting 50-20-30 rule. Being a millennial, you must be worried about your savings and retirement. Am I right? See, I can sense what you’re thinking!
All jokes aside…it’s a common worry.
However, it’s not much more difficult to save and achieve your financial goals, even if you’ve started a little late (guys just remember, it’s NEVER too late!)
First let’s talk about how to do this 50-20-30 budgeting thing, then we’ll throw some light on how you can make it work for you.
Don’t worry if you’re not a millennial. You won’t have to seek permission to read this article. This rule applies to everyone!
Minimalist Budgeting 50-20-30 Rule – How to do it
First of all you should know that the 50-20-30 rule and the 50-30-20 are the same.
Now read how to do it.
Here is the basic thing:
50% of your income – Essential spending
20% of your income – Your savings
30% of your income – Personal spending
Let me ask you a question – Do you know how much you earn every month?
Are you only thinking about your paycheck?
By income, I mean calculating your total income from all sources.
Now divide your take-home pay income in 50%, 20% and 30% increments
Allocate 50% of your income for meeting essentials and daily necessities
Your essentials – this means basic things like food, housing, transportation costs and utility bills. The total percentage is counted; so, you can adjust as per your liking. If you want to live in a relatively high cost apartment or want to live in a big house, you need to adjust the cost with food by having home-cooked food. You can also adjust by sharing a car, instead of each family member driving one.
About 20% of your income is for savings and nothing else
Do not compromise with this, even if you’re tempted to do so. 20% of your savings should go towards saving for retirement, debt repayment, your rainy-day fund and so on.
While planning the budget, just remember, the earlier you start saving and working towards achieving your financial goals, the better your financial health will be.
Remaining 30% income is for your personal use
You have to budget smartly in this category. Here’s a chance for you to save more, if you want to (and it’s definitely encouraged!). This category is for personal lifestyle expenses.
So, try to save more from this allocated percentage. Even if you’re able to save in some months and splurge on other months, it’s acceptable.
Now, there’s a catch. Only you and no one else can decide which expenses can be categorized as ‘Personal’.
And guys, another important thing – Make sure you follow the tricks to stick to a budget, especially if it’s a little difficult for you to save dollars.
The 50-30-20 rule for minimalist budgeting – How it can help you
Here are a few benefits of using the above-discussed budgeting principle.
You can achieve financial freedom
If you are able to save and plan a suitable budget using this strategy, you can achieve financial freedom and you won’t have to worry about unnecessary expenses, falling into debt, and so on.
New thinking will help you take new steps
When you plan your budget following this rule, it’ll help you make decisions to fit your expenses within the allocated percentage. For example, if you see the your utility bills are not fitting into the 50% category, you can look for ways to reduce the cost.
According to the financial experts, saving 20% of your monthly income is a good amount for millennials to save for the future. So ask yourself, are you saving this much?
Compels you to make lifestyle choices
Saving 20% is against the traditional rule of thumb of saving 10%-15%. But, when you’re forced to save 20%, automatically you’d have to make lifestyle choices to reduce other expenses.
So, sit down with a calculator, pen and paper, or open an excel sheet and be prepared to do the budgeting following this principle.
If you can master the minimalist 50-20-30 rule, you’re going to be one step ahead of the rest and ready to build a healthy financial future.
Barbara has written for several blogs. She has expertise in writing personal finance articles and is an active participator on social media. While not writing, she spends most of her time exploring new places, people & their culture. Get in touch with her on twitter @DelinskyBarbara