How To Save Money Quickly: The 50/20/30 Rule - Refresh Financial

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How To Save Money Quickly: The 50/20/30 Rule

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Wondering how to save money quickly, but it seems impossible? People who feel that saving money is hard or out of their reach are often just lacking a good plan. It’s not that they can’t save, it’s that they simply don’t know how to save money with all their other expenses in life.

That’s why having a good plan changes everything. Today, we’re going to look at the 50/20/30 rule for saving money.

Simply put, the 50/20/30 saving rule is this: 50% of your income goes to necessities, 20% goes to savings, and 30% is for personal use.

That doesn’t seem so drastic, does it? Let’s take a closer look:

1. 50% of your income goes to necessities

Necessities include your rent, mortgage payments, utilities, groceries etc. For some, internet, car costs and phone costs might also be considered necessities, but these are also items that can be cut out if absolutely necessary. Check out this post on expenses you can live without, even if you don't realize it.

In order for this to work, you have to make your necessities fall to or below 50% of your income. This might mean you have to move to a less expensive home. It could mean you need to eat a steady diet of rice, beans, and vegetables. You might need to give up your car. This is going to be the most difficult part of the 50/20/30 rule for many people, especially those who don’t know how to save money. Why? Because so many Canadians live well outside of their means. That is, they have too many "necessities" and are unwilling to give any of them up. If you are not willing to make any sacrifices, you shouldn't be asking how to save money. Because this is how. Make your sacrifices now, in order to live the good life later.

2. 20% of your income goes to savings

Once you’ve lowered your necessities to 50% of your income, saving 20% of your income is going to be so much easier. You’re no longer going to be living paycheck to paycheck and you can afford, now, to put some money away each month.

3. 30% of your income is for personal use

This is the money you spend on making sure life is still enjoyable - concerts or dinners out with friends, maybe a hockey game. What you can do with this money entirely depends on your income level, but even with a small income, there is still fun to be had on a budget. If you don’t end up spending this money, you can easily add the leftovers to your savings as well.

So, let’s say the take-home monthly pay total of you and your spouse is $3,600 which is based loosely on the lowest minimum wage in the country. If you and your spouse are putting away 20% of your income based on the lowest possible pay in the country, that’s $8,640 you’re saving every year. In just 5 years, you could have a decent sized down payment on a home saved up. Sure, it will be tight. You’re probably not going to be buying new Apple products, and thrift stores are going to become your best friend, but it’s absolutely doable - IF you are willing to sacrifice.

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