Have you ever wondered how to manage your finances successfully?
What if you discovered how one incredibly straightforward rule of thumb could help you reach financial success and obtain good credit?
The 50/30/20 budgeting guideline is an easy framework for guiding your spending and saving.
The concept was first introduced in the early 2000s by US Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi, in their bestselling personal finance book.
The 50/30/20 spending guideline ensures you responsibly cover all your financial obligations while still leaving room for some flexibility of spending.
While there are many budgeting guides and advice out there, this one is an easy-to-remember rule to organize your spending and ensure you’re on the right financial track.
Take control of your spending and avoid bad credit with this budgeting rule: using your net income (that is, the total of your take-home pay after all your taxes and contributions have been deducted from your paycheck), 50% of your income should go to needs, 30% on wants, and 20% on savings.
50% on needs
Your needs are the essential food and shelter bills you need to pay to survive.
For example, while you may love your streaming services, you would be fine if you had to cancel them. However, assorted bills, such as heating, especially in Canadian winters, are a core need because you could not cut those from your budget without negatively impacting your lifestyle.
Another need that is often overlooked is debt servicing. If you have a student loan or car payments, ensure to include the minimum payments in your calculations.
30% on wants
Shopping, entertainment, travel, all these expenses fall under wants. This category of spending is for your pleasure only.
Spend the money on what brings you joy, but ensure you keep it to 30% of your after-tax income.
20% on savings and debt
Ensuring you have money stored away for retirement and a rainy day is a crucial part of successful financial planning.
Focus on putting away 20% of your income into an emergency fund, retirement savings such as RRSPs, and paying down additional debt.
iCASH is an online payday loan company that provides financial help. Find financial education tools online at icash.ca.