Being good at money managing isn’t something you learn by reading some books, as you have to experience every rule for yourself.
Budgets are part of the path of financial security and freedom, but almost no one make use of this simple concept. Most people are just living without properly managing their incomes, making them vulnerable to disasters and sudden expenses.
The majority of people would be a happier just by organizing and categorizing their needs while watching closely to how they spend their money.
Without this knowledge, they can’t decide what to do with their incomes, and their lives suffer from this. There’s a simple budgeting protocol for these types of individuals, the 50/30/20 method, let’s break it down.
The 50/30/20 Method
This method was invented by Harvard bankruptcy expert Elizabeth Warren and it revolves around the idea of separating our wants and needs in different categories to make our financial choices easier to handle. Although this is just a basic template to work it, but even people with good financial knowledge could take something out of it, but how does it work?
Limit Your Needs
One of the most important elements of the 50/30/20 method is knowing what is considered a “want” and what’s considered a real “need,” and this can be the trickiest part for the majority of people who’re just starting with the protocol, as you should limit your needs to spend up to 50% of your after-taxes income on them and no more than that.
Needs are things that will change your quality of life if not paid, as medicine bills and your mortgage, and wants are everything you can buy to indulge yourself a bit, like your cable bill or new clothes for summer time. Credit cards’ minimum payments are needs, but going beyond that wouldn’t be. This can be complicated at first, but you’ll get used to it.
Limit Your Wants
Our wants are important if we want to keep our budgets viable, and it’s important to designate 30% of your after-taxes income to wants of your own. These don’t include extravagant stuff, but only things that will boost your quality of life, as cosmetic repairs to your car, your cable plan, or the unlimited cellphone plan you love so much. We’re not talking about trips to Bali here.
Pay Your Debts and Save Money
The most important part of the plan is your saving protocol. Start by knowing that you can’t actually save money if you have debt. You should spend 20% of your after-taxes income paying for any debt you have left and then start saving that same percentage for a proper emergency fund and a retirement account. This seems simple, but people won’t even try.
Next time you’re thinking about your money and making your weekly budget, think about how you can implement this protocol. If you’re struggling with budgeting, this could be the simplest solution available. Some of us in Wheelz actually live by these rules, and they work perfectly.