3 Steps for Using the 50/30/20 Savings Rule
Senator Elizabeth Warren first coined the 50/30/20 savings rule as a financial guide for her daughter. This method has become popular over the past decade for its easy-to-follow guidelines. Here’s how you can use the 50/30/20 rule to build your savings and pay your debts.
How to Budget With the 50/30/20 Rule
1. Spend 50% of Income on Needs
The first rule is to spend only 50% of your pre-tax income on your needs. Your needs are the things that you require to live. They include expenses such as housing, utilities, transportation, gasoline, and healthcare. You should also include all of the minimum payments for your debts.
2. Spend 30% of Your Income on “Wants”
After your needs are met, you are free to spend 30% of your income on wants. Wants are the expenses you like to have but aren’t necessary for you to live or work.
Some common expenses in the wants category include:
- Cable TV
- Clothing
- Eating out
- Manicures
- Books
- Movie tickets
Your wants will look much different than everyone else’s, and that’s perfectly fine. Whether it’s video games or a new pair of shoes, use 30% of your money on activities and items that bring joy to your life.
3. Spend 20% of Your Income on Savings or Debt Repayment
Once you’ve met your needs and bought the things you want, you’ll have 20% of your income for savings and debt payment. You can also use the money in this category for an emergency fund, down payment, or retirement account.
Debt payment includes everything you pay that is above the minimum amount. If your minimum credit card payment is $25, but you paid $100, $75 of that payment falls into this category, while the $25 minimum payment is considered a need.
If you’re ready to put 20% of your paycheck into savings, open an account with First State Bank of Russellville in Pope County, AR. They offer regular savings options, senior checking accounts, and personal loans. They also have online and mobile banking to make it easier to keep track of your money. Visit their website to learn more or call them at (479) 498-2400 with questions.
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