To save a larger amount of money, it is very important to control income, but, above all, expenses. Knowing how much is spent on each thing will help identify which expenses can be reduced on a weekly or monthly basis, so that higher savings goals are met.
To help with this task, there are numerous widely spread savings methods, tricks, and rules that are simple to implement and effective for controlling personal finances and having a cushion of money in case of an emergency or for investing and earning more. This is the case with the 50/30/20 rule.
Steps to save with the 50/30/20 rule
The savings method known as the 50/30/20 rule is one of the most used to control money and save more regarding personal and household finances, as it is a traditional method that is very easy to implement.
Thus, the 50/30/20 rule involves dividing the money that is earned monthly into three parts, assigning each of these parts to a different area. Logically, one of these areas is savings.
So, the first thing to do is calculate these parts according to the total monthly income, based on the percentages of 50%, 30%, and 20%. For example, a person who earns a total of 2,000 euros per month, should distribute this amount as follows: 1,000 euros (50%), 600 euros (30%), and 400 euros (20%).
Having clear these percentages and the amount of money corresponding to each income, it is time to manage what each percentage corresponds to, which must be distributed as follows:
- 1,000 euros (50%) – basic and necessary expenses
- 600 euros (30%) – luxuries and leisure
- 400 euros (20%) – savings
First and as can be seen in the list, the majority percentage of 50% corresponds to basic and essential expenses, such as water and electricity bills, rent, or the purchase of food and basic products. The next percentage, 30%, corresponds to secondary and unnecessary expenses, such as luxuries and leisure, which may include dinners and meals outside the home, movies or clothing. Finally, 20% of total income is the percentage that must be allocated monthly to savings.
Almost every month there may be extraordinary or unexpected expenses, but, in general, everyone has fixed expenses and behavior patterns or routines that make it easy to know where most of the monthly money goes. Therefore, before starting to apply the 50/30/20 rule, it is advisable to observe these spending patterns, taking note and classifying them by categories, to then see if these percentages are being met or not.
Thus, once the month is over, all you have to do is add up the expenses classified in each category and see if it corresponds to the indicated percentages, or if, on the contrary, too much money is being spent on leisure and free time and if any of them can be cut. If the expenses are under control, you can even increase the percentage allocated to savings in a particular month.
