50/30/20 Rule To Budgeting

We all need a little help budgeting. But that help can go a long way to helping us achieve our goals.

The 50/30/20 Rule is really more of a guideline, and aims to help you budget your personal finances. Budgeting is important because it’s not just useful to know where you are spending your money, but budgeting can help you achieve your goals for your future. This is particularly important for students and young professionals who often face difficult financial circumstances and can do with some useful advice to help them navigate sometimes treacherous financial waters.

50% Of Your Income On Essentials

This is a pretty wide ranging bracket for your expenses, but when you really think about it there are a lot of things we need, and they are often not cheap. We have outgoings on rent, food, water, utilities and commuter travel for example. These are obvious, but then you might also have certain essential healthcare costs, basic clothing needs, as well as obligatory costs such as visiting family, which you would count in this bracket as well.

Being able to manage your finances and outgoings so that essentials account for no more than 50% of your spend gives you the flexibility to start saving or investing early. This is something too few young people currently do, and it can pay serious dividends later in life.

30% Of Your Income On Personal

Personal spending is another broad category and can be as wide or narrow as you choose. The important part of it, is that you choose. This is the part of your budget where you choose what you want to spend your hard earned cash on. So, go ahead. Spend it. Think about what sort of lifestyle you want. What it is that you think is important, and spend your money on that.

At DividaBill we have a phrase, “Some things are worth spending time on, and bills aren’t one of them.” This might seem ridiculous for a company focussed on billing, bit it is important. This definitely falls in to the personal part of your budget because we just want to ask you; do you want to spend your rare spare time, enjoying it by doing what you love or by getting caught up with boring admin? Do you want to spend your money living your life to the full, or missing out? This 30% is where you get to make that decision.

20% Of Your Income On Savings

This can include paying off debt, adding to savings plans and contributing to rainy day funds. This is your nest egg. This is what, when you think about where you want to be in 10/20 years, is going to help you get there.

The earlier you start with savings, the greater the reward you will receive in the future. So be consistent, stick to it, and as ever your patience will be rewarded!!