The idea of the 50/20/30 budgeting method was popularized by U.S. Sen. Elizabeth Warren, a bankruptcy expert, and her daughter, business executive Amelia Warren Tyagi, in their joint book “All Your Worth: The Ultimate Lifetime Money Plan.”
The goal is simple that is to break down your monthly take-home income and focus your spending in three broad categories.
The 50 (%) : The Essentials
The 50% is a category for the essential bills. The absolute necessity.
Typically would cover
- Rent or mortgage.
- Utilities: Electricity, water, gas, etc.
- Groceries.Cooking is much cheaper than eating out. Healthily atleast.
- Car insurance and/or car payments: 2nd hand cars could be cheaper alternative.
- Phone and internet: Find the best available package. For example, read, (Telco) Maxis versus Digi.
- Fuels or gas for your transport.
- Credit card and loan minimum payments: Make no mistake you need to be up to date to your bills payment. Meaning, for your loan, make sure you make the payments on time, for your credit cards, make sure you try to pay it off every months.
- Other: Bills that are essential and probably no fun at all. Example, babysitter salary, prescription medication, etc.
The 20 (%) : The Financial Goals
This second category puts the focus on helping you improve your financial health and goals. This would includes:
- Investments. The Richest Man in Babylon would suggest the safest route first.
- Savings. One of the biggest steps to financial health is having emergency savings so you don’t step backward every time an unexpected expense pops up.
- Debt-reduction payments: This is for payments on your credit cards, student loans and any other debts that are above the minimum payment. This is to reduce the amount of interest you would have to pay over the long run.
The 30 (%) : Personal Spending
What’s the fun if you can’t spend the money you’ve worked hard for.
- Eating out.
- Vacations. Try to pay cash for your vacation. There are no logical reason to be in debt to have some fun.
- Personal development.
So, that is in general, a quick guide to the 50/20/30 budgeting method.
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