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

piggy bankThere’s this idea many people have that saving money is difficult, especially if you’ve found yourself living a lifestyle that leaves very little leftover, if any at all, after you’ve met all your expenses. It’s something that seems unattainable, undoable, impossible… but it’s really not. People who feel that saving is hard or out of their reach are often just lacking a good plan. It’s not that people who don’t save can’t save, it’s that they simply don’t know how.

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

That’s stuff like your rent, mortgage payments, utilities. Things you can’t live without. This is probably going to be the most difficult part of the 50/20/30 rule to achieve because most people who don’t save live well outside of their means. In order for this to work, you have to make your necessities fall to or below 50% of your income. Your groceries, your housing costs, your phone bill. All of it has to total less than 50%. This might mean you have to move. It could mean you need to eat a steady diet of rice, beans, and vegetables. Whatever you have to do now, though, to make it work, is to ensure your future will be much more comfortable. Make those sacrifices now, 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 would be for stuff like concerts or dinners out with friends, maybe a hockey game. You know, things you can live without but really enrich our lives nonetheless. This is the money you spend on making sure life is still enjoyable. 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. That means you need to be able to pay for housing, food, and bills using just $1,800. Rent of about $1,100 is still going to leave you with $700 for food, bills, clothes and whatever else you need to survive the month. That’s not impossible to do. If you and your spouse are putting away 20% of your income based on the lowest possible pay in the country, you could live in an $1,100/month apartment and put away $720/month into savings. 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. And you still have $1,000 every month to spend on personal/entertainment or just tack onto what you save so you can build your savings faster.

Sure, it will be tight. You’re probably not going to be buying the latest iPad and thrift stores are going to become your best friend, but it’s absolutely doable and with relatively little pain. If a dual income couple making the country’s lowest minimum wage can do it, I’m pretty sure you can, too.

What do you think of the 50/20/30 Rule? Could you do it? Let us know in the comments!

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