The 50/30/20 Principle
Bringing you some value today folks, keeping it short and sweet with a simple yet effective way of managing your personal finances.
If you’re like me, you don’t really keep track of your outgoings to any greater extent than merely ensuring you don’t plunge too far into the red. Actually, that’s a lie – I’m very organised when it comes to my personal finances but doesn’t it feel much more inclusive if I pretend otherwise? Once more unto the breach, dear friends, once more.
The principle I’ll move onto is something I picked up once upon a time – on Forbes or something similar. Now, I’ve amended it slightly to fit my personal preferences i.e. fritter a little less and save a little more. My friends will attest to my stinginess.
So here it is; the 50/30/20 principle.
Your fixed monthly expenses (rent, loan repayments, mobile phone bills, food etc) should not exceed 50% of your monthly income. I know this is easier said than done, but if you can get as close as possible it really makes a difference! If your fixed monthly expenses are already below 50% then hats off to you. You either live frugally or are earning a decent wedge (or both).
30% of your income should go into your savings. Savings can come in many forms – a simple savings account, investments (check out cryptocurrency), pensions, a sweet Rolex (yes this can be considered a shrewd investment if you buy well) – the list goes on.
30%. You heard me. Thank me later (…in like 40 years).
The fun part. Allow yourself 20% of your monthly income for discretionary spends. That’s a posh term for booze and trainers basically – whatever your heart desires. Allocate yourself a fixed amount and spend it guilt-free. You deserve it.
Now, as I mentioned above, I did amend this rule. When I first came across the beautiful simplicity that is the 50/30/20 principle, the 30% and 20% were actually the other way around, with heavy nights in the Courthouse and late night ASOS orders taking up 30% of monthly expenses with just 20% going into the savings pot.
It’s completely up to you – the main takeaway here simply being that getting a bit more organised and having some structure to your spending will see you sensibly saving for a rainy day, whilst allowing for a little splashing of your hard-earned cash without enduring buyer’s remorse.