Today I want to bring to your attention another very simple method, which is known as “ method 50/30/20“. After reading the article, you will learn how to plan a budget using the 50/30/20 method, what its features, advantages and disadvantages are, and you will be able to conclude how suitable this technique is for your particular case.

The 50/30/20 method, at first glance, is quite simple, but ambiguities may arise in its interpretation, which are very dangerous for (I will talk about this later). This method is best used by people with a stable income who are unable to save and create the necessary funds.

The essence of the 50/30/20 method is simple. All income, after entering the budget, must be distributed into 3 parts, each of which will be used strictly for its intended purpose:

• 50% – to pay for mandatory essential expenses;
• 30% – to pay for optional but desirable expenses;
• 20% – for the formation of financial assets and payment of unexpected expenses.

It is very important to correctly and objectively distribute expenses into categories - this is the main ambiguity in using this method of planning a family budget. The distribution should be made approximately as follows.

• Repayment of debts, if any;
• Payment of all regular monthly payments (utilities, mobile communications, Internet);
• Payment of housing rent;
• Purchasing the most necessary food products;
• Mandatory transportation costs;
• Mandatory treatment expenses;
• Purchasing urgently needed clothing and shoes;
• Etc.

• Buying non-essential products;
• Food in catering establishments;
• Buying clothes and shoes is not essential;
• Visiting fitness clubs, gyms, swimming pools, beauty salons, etc.;
• Visiting cinemas, theaters, sporting events;
• Other types of recreation and entertainment.

• Formation (of a financial airbag);
• Formation for making large purchases;
• Formation;
• Payment of unforeseen expenses (for example, urgent repairs, etc.);
• Present.

Expense categories can be adjusted for each specific budget, but not significantly. Over the course of a month, it is strictly forbidden to “transfer” money from one category to another. Available funds remaining at the end of the month in the first or second category can be transferred to a similar category for the next month or transferred to the third category, replenishing reserves, savings or capital.

Let's look at the main advantages and disadvantages of using the 50/30/20 method for planning a family budget.

Advantages:

1. The method is quite simple and understandable and does not require complex calculations and distributions.
2. The 50/30/20 method allows you to clearly identify and limit a clear amount that can be “squandered,” that is, spent on optional but desired expenses.
3. The method allows you to regularly allocate funds to create personal financial assets, that is, to strengthen and increase your income.
4. The method significantly reduces the likelihood of not having enough funds to pay for something mandatory, important and necessary.
5. The 50/30/20 method is well suited for those who are just taking their first steps in planning a family budget and personal finances.

Flaws:

1. Different people may have different visions of dividing expenses into mandatory and desirable.
2. Those who are used to spending large sums on non-essential spending will find it difficult to switch to the 50/30/20 method, since they will now have to reduce these expenses.
3. The method is not too strict and leaves room for maneuver. For example, in the third category you can only allocate, say, savings for vacations, without creating reserves and capital. Thus, people with a weak financial genius will always provide free information and advice in this regard. See you again on the pages of the site!

According to the Public Opinion Foundation, conducted in June 2015, only 11% of Russian residents purposefully save money, while 53% do not have any savings, living from paycheck to paycheck. It’s simple to explain: firstly, many simply have difficulty making ends meet and cannot afford to save, and secondly, during the Soviet and post-Soviet period, people have developed the idea that no matter how much they save, it’s still too early to save or they will burn out later, and therefore it is better to spend the remaining money right away.

Save money

using the rule 50/20/30

In the United States, savings are also not easy for citizens. According to Alexa von Tobel, founder of startup LearnVest and author of Financially Fearless, up to 76% of Americans live paycheck to paycheck. The reasons, however, are different: most young people enter adulthood with significant college debt. They are unable to save money: almost all their earnings are spent on rent, loan payments and other obligatory expenses.

Von Tobel names the ideal ratio of what the salary should be spent on:

50% should go towards all necessary expenses: rent or mortgage, transportation, groceries, utilities and other things you can’t live without. Of course, not everyone can afford this right away: many spend half their salary or more just on renting an apartment. But it makes sense to strive for this.

20% should go towards savings or paying off debts, if they are. It’s also better to automate work with this part by transferring money to a deposit or somewhere else immediately after you receive your salary.

The remaining 30% can be spent on entertainment: shopping, restaurants, personal care and more. Although the most important part of this formula is 20%, von Tobel asks to be sure to leave some money for yourself so as not to lose motivation.

No matter how much we earn, we always want to spend more than we can afford. To have a stable financial situation, it is not at all necessary to increase your income. There are simple rules for regulating a personal or family budget that allow you to create savings despite payment costs that cannot be avoided. The 50-20-30 rule is designed to streamline everyday spending while creating cash savings.

What do the numbers 50-20-30 mean?

The numbers collected in a peculiar formula 50-20-30 represent the recommended proportions of the financial balance when planning the distribution of earned funds:

1. 50% of all proceeds must be used to pay for current daily expenses, which are mandatory for us:
products;
rent or mortgage payments;
Payment of utility services;
transportation costs, including maintenance of a car, if any;
payment of long-term loan amounts, training.

2. It is recommended to set aside 20% of income in the form of savings, which will accumulate to achieve certain financial goals:
insurance in case of temporary loss of source of income;
repaying financial obligations such as borrowed funds or short-term loans;
accumulation of funds for upcoming expensive purchases in the long term.

3. 30% of the money earned should be attributed to upcoming expenses that you can do without:
more refined food, visiting restaurants;
entertainment, country picnics and tours;
shopping;
self-care with visits to spa salons.

Features of the practical application of the 50-20-30 rule

As European experts note, compliance with the proportions of this rule does not cause any particular difficulties if you clearly understand the features of each of the recommended expense items.

1. Mandatory expenses (50%)
To learn how to “fit” into the established limit of mandatory expenses, you need to make a list of essential items and decide on monthly expenses for shopping and entertainment activities. Financial planning should in no way be accompanied by dietary restrictions, deterioration in the quality of household sanitation and personal hygiene, or other deprivations in everyday life. A saturated commodity market allows for variation in costs classified as current daily payments. For example, in many families more than 30% of wages are spent on food. But there is a choice - to make homemade preparations on the market or buy ready-made semi-finished products, that is, mandatory expenses can be adjusted to your needs with appropriate adjustments to the content of the compiled list. In the same way, mobile communications costs are adjusted, avoiding excessive excesses on social networks except for business conversations over the phone.
It is important! It is necessary to strictly control the planned mandatory expenses so that they do not exceed 50% of all money earned. Otherwise, you will either have to increase income, which is not always possible, or reduce the number of mandatory payments.

2. Savings for financial purposes (20%)
Figuratively speaking, this is the money that needs to be “put aside in a box”! In the 21st century, the traditional piggy bank will be successfully replaced by a separate bank account opened specifically for this expense item. Among financiers, the funds in this account are called a “safety cushion”, allowing the owner to be protected during the period of losing a source of income and searching for a new one. Bank experts on pension deposits recommend using this account for savings for your upcoming retirement and possible investment in reliable projects, even if retirement age is still far away. Having a savings account will allow you to correctly distribute debt payments. For those with a mountain of debt, experts advise against spending more than you can save. To pay off debt, it is recommended to decide on a repayment deadline and distribute monthly payments from this account. As the debt or loan is repaid, the account holder will be able to use the reserved savings more effectively.
It is important! A prerequisite for using a savings account should be the possibility of partial withdrawal of money in emergency cases without withdrawing interest. However, you should not convince yourself that buying a new fur coat on sale is an emergency!

3. Universal expenses (30%)
The purpose of the 30% expense item—spending “on yourself,” to buy what you really want—is puzzling. The first two articles of the rule require the strictest savings and control of expenses, the final part of the 50-20-30 rule literally obliges you to spend money on purchases that you can easily do without.

The author of the 50-20-30 rule is Alexa von Tobel, founder and CEO of the American service LearnVest. In her opinion, making sure to leave some money for “yourself” expenses is necessary to maintain motivation for financial planning. Although Alexa considers 20% deductions to be the most important element in her formula...

It is unlikely that anyone will be able to maintain the balance recommended by the 50-20-30 rule in the required proportions. The financial situation in each family is purely individual. Expenses for housing and food often approach 100%, which already introduces an imbalance in planning expenses according to Mrs. von Tobel’s scheme. The main thing here is to understand that if you keep your finances in sight, financial well-being will definitely come. As von Tobel figuratively put it, money is not a means of worship, but an excellent tool for proper use in life.

It is not necessary to earn a lot for your financial situation to be stable; it is enough to develop good financial habits. Just like you get into the habit of brushing your teeth twice a day and playing sports, you can develop the habit of being smart about the distribution of expenses and income.

21 days is exactly how long it takes to consolidate a habit so that it is deposited in the subconscious.

We present to your attention the main rule that you can follow for the next 21 days and then for the rest of your life - the 50/20/30 rule.

This rule was invented by Alexa von Tobel, founder and head of the American financial service LearnVest.

Not everyone can maintain the balance of this proportion: some have more expenses on loans, some spend more on entertainment, but 50/20/30 is what we should strive for in order to avoid the debt trap and live for pleasure.

Remember: you will always be limited in your income, no matter how much you earn, you will always want more than you can afford.

Here are some simple tips to help you achieve a 50/20/30 balance.

Tip #1. Start keeping track of your cash.

Calculate how much you spend per day/week/month and compare the amounts with the money you earn. The assessment of your expenses should be as accurate as possible: the options “I spent approximately 15 thousand on vacation” are not accepted, since you can make a large error and forget about missing expenses.

Many banks, for example, TKS Bank and Sberbank, have their own expense analytics system, where you can see where the most savings are spent and reduce expenses in the right category in a timely manner.

Tip #2. Open a deposit or savings account at a bank.

The easiest way to save a certain amount from your salary is to open a savings account in a bank. An additional account will allow you to transfer part of your salary and receive monthly income from this amount in the form of interest. Remember that the ideal ratio is to save 20% of your income.

Suppose your salary is 35,000 rubles, which means 20% is 7,000 rubles, which goes into the piggy bank. For a year you receive 7,000 x 12 = 84,000 rubles.

If you keep money in a savings account, you will receive an additional monthly interest of about 6% per annum, depending on the interest rate set by the bank. Your profit at the end of the year will be 86,348.94 rubles.

The effect is obvious: by saving only 20% of your salary, you will always have a reserve fund. The sooner you start saving, the faster you can achieve your goals.

Tip #3. Learn to spend less than you earn.

The reality is that many people spend money unnecessarily. Having barely paid off their loans, they go and take out a new one, accumulating more and more debts. Unconsciously, they live “from paycheck to paycheck.”

To get out of the ill-fated circle, it is enough to redistribute your income and learn to live a little more economically. Spend less on mobile communications, save on electricity, buy used equipment. Once you develop the habit of saving, you will notice how quickly you will have free money and the ability to purchase things without loans.

The simple truth is that once you start spending less than you earn, you will stop worrying about your financial situation.

Platiza pays special attention to improving the financial literacy of Russians. We help borrowers get rid of debt by disclosing in advance all the nuances of obtaining a loan and warning about a responsible attitude towards its processing.

In order for your financial situation to be stable, it is not necessary to earn millions. Sometimes it is enough to develop a simple but effective budget distribution plan or, for example, use the already proven rule (principle, system) 50-20-30.

If you're new to budgeting, you'll want to figure out how to properly manage your finances so you don't feel overwhelmed later. After all, you not only need to organize everything, but also decide how to spend your salary. You won't be able to rely on other people's experiences because your income and expenses may vary significantly.

But here's the good news: You don't have to create complex spreadsheets with countless spending categories, or be a financial expert to figure out how much money you can spend. You just need to stick to the simple, effective 50-20-30 principle.

So, what is the essence of this rule?

The very valuable 50-20-30 financial allocation principle can easily help you allocate your budget using three expense categories:

– 50% of your income should go to the most necessary expenses: rent (rent), utilities, food, transportation;

– 20% of income comes from your savings, investments or paying off debts (if you have them);

– 30% of your income should be spent “on yourself”; These are so-called flexible expenses: that is, everything you want, but that is not so necessary (for example, travel, cinema, restaurants).

Financial planner Eric Roberg says the whole point of this rule is to take action and use a system that will help you stay consistent in managing your money each month. Such a system will help make sure that while you cover your expenses, you are responsible for your tomorrow and can enjoy life today.

How to implement the 50-20-30 principle in your own life?

Find out what's happening with your costs right now. First, calculate your salary because that is the amount you bring home every month. This is your income and distribution should be based on it.

Next, track your expenses. This means you have to count every penny, from your rent to the coffee you buy on the way to work. Then decide on the categories above: what you need to spend money on first of all, with financial goals and flexible costs. And figure out what the 50-20-30 principle would look like in terms of your currency. If you're spending a lot on things you want, but they're not that important to you, then it's time to cut down on that list.

Why does the 50-20-30 system work?

Thanks to this system, you pay your bills, save constantly, and have money that you can easily spend on your own needs. Moreover, it is very simple for beginners, and all the steps in it are clear and will help you achieve financial stability.

In addition, the rule offers some flexibility. You can change the ratio a little to make it work better for you.

"Every personal budget is different, so there's no way to say that this is an exact percentage," says Eric Roberg, a financial planner who specializes in helping professionals and entrepreneurs at Beyond Your Hammock.

So, if you still haven't found a common language with your funds, try using the 50-20-30 financial distribution rule. Perhaps this will be a good friend for your budget.