All right, let me be real with you. When I graduated from university, I had a shiny degree, a suit, and about 50 bucks in my account. At that time, I was on a student loan, and it felt like unpaid rent waiting to get cleared.
It was quite a month after graduation. I got a new phone, which was on credit, and I spent some money on Uber Eats because I deserved it, right? I also got some stuff that I felt I needed to enjoy myself, but I thought budgeting was for boring people. I wanted to live in the moment, hoping that something good would fall from the sky tomorrow and reach me.
A few months later, I was sad about the figures I was seeing in my personal bank account. I felt so down and wished it had never come to that. I thought about it for a long time, only to discover the 50/30/20 rule.
I know you might be asking, what is this 50/30/20 rule? Don’t worry, we’re going to discuss it in the next section, so stay with me and let’s get into it.
What Is the 50/30/20 Rule?
Well, it’s a simple budgeting rule that could make your life better by helping you spend based on a plan. It’s about dividing your monthly income into three parts: one for savings, one for expenses, and one for things you want.
- 50% of your income goes to your needs. This includes your rent, groceries, utilities, and so on. Even though I said 50%, if your bills aren’t up to that, you can call the shots and spend wisely.
- 30% goes to wants. This includes paying for a gym membership, subscribing to Netflix, or anything you enjoy for fun or relaxation.
- 20% goes to savings and debt repayment. This is for savings, paying off loans, and making investments. This is one of the most important parts of budgeting and shouldn’t be taken lightly.
Now you see what the rule is all about. It actually keeps you from crying at the ATM like I used to during university. Using this rule, you’ll know exactly where your money is going without worrying about excessive spending. That way, when the money you budgeted for needs runs out, you’ll have to wait for your next salary instead of dipping into your savings.
How I Used It (And Screwed It Up at First)
I started by calculating my post-tax income. At the time, I was making about $3,000 a month after taxes. According to the rule:
- $1,500 went to needs
- $900 went to wants
- $600 went to savings and debt
Simple, right? Ha.
My wants were rising above $1,200 because I was getting carried away. I had to calm down. I cut off nights out and canceled some subscriptions to keep my wants lower. I won’t lie it hurt, but I had to do it to stay within budget. I also learned to cook meals I never thought I would, because I used to order food most of the time. This way, I spent less and had more money in my account.
Why This Rule Works
This works because you’re in control. It’s not like the old days when your bank account controlled you. Budgeting doesn’t mean you won’t enjoy your money, you will. But while enjoying it, you’ll know how much you actually have to spend. No more random withdrawals from your account.
The best part is, this rule let me build up extra money in my account. I remember when my car broke down. It cost $300 to fix, and I paid for it myself, no need to call my mom for help. I was proud and relieved.
Lesons I Learned the Hard Way
- Budgeting doesn’t mean never having fun. It means planning your fun.
- Being broke isn’t a personality trait. It’s often just a lack of a system.
- You don’t need a finance degree. You need discipline, honesty, and maybe a calculator.
- Stop buying almond butter if your rent is due.
Now, here’s my final talk. I know you might be fresh out of school or maybe newly employed. You might feel like you’re not earning enough. But if you structure yourself and manage your finances properly, you’ll have money to save, invest, and spend. Even with a little income, you can do the math and allocate your money across the categories mentioned.
Earning a low income doesn’t mean you should skip savings or sacrifice savings for fun. You can split it, spend wisely, and make sure you don’t exceed your budget for each category.
If your investment budget has been exceeded for the month, wait until the next month to continue investing. If your needs budget has been exceeded, also wait for the next cycle. That way, you control your money and not the other way around.
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