50-30-20 Method: what is it and how to use it in everyday life?
The 50-30-20 method is one of the most efficient ways to organize your finances and save money.
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The 50-30-20 method is the solution for those who want to manage their personal budget and don't know how to start.
After all, creating a financial plan is not always easy. For this reason, there are some organizational techniques to make the process easier, which is the case with this method.
By applying this rule, you can have a more organized and peaceful financial life.
Want to know what this is and if the 50-30-20 method fits into your routine? Then keep reading for more information!
What is the 50-30-20 method?
The 50-30-20 rule is a method of personal financial organization.
In other words, it is a reference to guide your budget.
Applying this rule to your routine means establishing a spending limit for these three areas: essential expenses, variable expenses and investments.
According to the method, 50% of your earnings should be directed to personal accounts.
Variable expenses (non-essential) can represent up to 30% of your income.
Finally, there are the 20%, which should be reserved for saving and investing.
How to organize your salary using the 50-30-20 method?
Now that you know how this rule works to organize your salary, it's time to learn how to use it. Let's go!
50% for essential expenses
Half of your net income should be set aside for living expenses and basic necessities.
These expenses are necessary to keep your routine in order.
But after all, what can be considered an “essential expense?”
In general, these are expenses with:
• Rent
• Food
• Electricity bill
• Internet and telephone bill
• Cooking gas
Of course, these expenses depend on your reality.
For a family of four, it is natural that electricity costs are a little higher.
A person who lives alone will probably spend less on this essential expense.
30% for variable (superfluous) expenses
One third of your income can be spent on products and services that are not considered essential, but are good for you.
Obviously, at some points in life, if you are on a tight budget or saving money to achieve a goal, you may need to cut back on some of your unnecessary expenses.
Some expenses that fit into this section include travel, cinema, restaurants, streaming services, among others.
Without a doubt, this is the most personal part of the entire method. After all, only you know what can really be considered leisure in your routine!
And it is in this category that some problems often arise, as some people are unable to control spending on non-essential expenses.
Obviously, you need some leisure time. Just be careful that these expenses don't compromise your entire income, because if that happens, you could end up in debt.
To avoid debt, it is essential to have a standard of living that is in line with your income.
20% for debts and investments
Here you will find the resources you need to save to pay off debt or achieve long-term financial goals.
This category may even be new to those who were not familiar with the 50-30-20 method. After all, most Brazilians do not have the habit of saving and investing.
The 20% percentage of your salary should be used to pay off debts, if you have any financial issues.
If this is not your case, you can use the 20% for investments and for building your business. emergency reserve.
More important than reaching your goal is creating the habit of saving and investing. Saving a small amount is better than saving nothing.
So, if you are currently unable to save 20% of your income, don't let that stop you. As you already know, the first step is to get started. Over time, you will be able to increase the volume of investments.
How to implement the 50-30-20 method?
One of the main advantages of this budget is its flexibility.
However, it is up to you to decide how to use it.
For example, if your current priority is paying off debts, you can use a larger portion of your budget to pay off your financial debts.
Now, see a step-by-step guide to applying the 50-30-20 method:
1. Map out all your expenses
It may seem obvious, but many people don't know exactly how much they spend each month on essential expenses.
The first step is to review your budget.
This step will give you a more in-depth view of your expenses and show whether you are really managing to live within your standard of living or whether you are spending more than you can afford.
2. Make the necessary adjustments
Once you’ve mapped out all of your expenses, it’s time to make some adjustments to your budget.
Here are some tips on what you can do:
• Calculate your debts and start negotiating to reduce the amount
• Readjust non-essential expenses and establish a maximum amount to spend on leisure
• Set financial goals to achieve in the long term
3. Automate control
To know if you are managing to keep your expenses within each category, it is important to monitor all your income and expenses.
You can do this through an Excel spreadsheet, a notebook or a personal finance app.
Once you’ve organized, there’s no point in simply forgetting about your planning.
After all, just creating a plan to take care of your finances is not enough – you need to put it into practice.
4. Prioritize overdue debts
If you have any debts, the first step is to pay them off and negotiate them as quickly as possible.
Otherwise, financial issues will continue to affect your budget.
Furthermore, before you even start saving and investing, it is ideal that you organize yourself to stay up to date with your bills.
Conclusion
Now you know what the 50-30-20 method is and how to put it into practice.
Also, remember that it can be flexible according to your reality, expenses and financial priorities!
