Understanding The 50-20-30 Budgeting Rule

Saving money over time for a large purchase can be hard but not impossible. Maybe you’re looking to buy a house, save for a wedding, or take a fabulous trip. No matter what your goals are, you need to save money to get them. Sharemoney knows what it’s like to look for ways to cut costs and make your budgeted money stretch further. If you’re thinking “I can’t save money!” think again. We want to show you that you don’t need to pinch pennies to successfully save money over time. In this article, we’ll discuss the best ways to save money over time and the hacks you can start today to help you save money!

1. Manage Your Household Expenses

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Most people don’t realize how much money they spend on household expenses unnecessarily. Here are some simple ways you can cut costs and save extra cash on household expenses.

Turn Off Your Electronics

Turning off your television, and house lights, and unplugging your electronics when you’re not using them can help you save major money on your utility bill. Remember computer isn’t just the monitor. Actually shutting down the PC and unplugging the charger can go a long way.

Fix Things Yourself

Fix things yourself using online guides. Try to avoid calling a plumber or a locksmith the next time something in your house breaks down. All the resources you need to fix things yourself are online. Do a quick search on Google or look for videos on Youtube that can help you do almost anything.

Cut Premium Services and Subscriptions

Cutting premium services and subscriptions can save you a crazy amount of money. Considering all the available subscriptions today, many of us pay more than we realize on services and premiums every month. Sit down with yourself and your family and assess what services you actually need and which you can let go of. Remember that you can always unsubscribe once you reach your money-saving goals.

2. Optimize Your Food Shopping for Savings

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For most households, food is one of the biggest expenses next to rent and utilities. Eating well is important, but there are many ways to save on food shopping to help you reach your money-saving goals.

Buy In Bulk

With stores like Costco, Sam’s Club, and BJ’s taking over, buying food in bulk has never been easier. By buying in bulk you can take advantage of discounts you wouldn’t otherwise get and pay less per item. If you don’t feel that memberships at these stores are worth your money try taking advantage of the sales and 2-for-1 sales at your local grocery store.

Buy Generic

Buying generic rather than name brand can be an easy and simple way to save. People look to brand names because of the reputation they carry, however, generic brands are often almost identical. Generic brands are frequently cheaper than name brands making them a practical alternative.

Meal Plan

Meal planning can help you stay organized with your food shopping and can easily be made around supermarket flyers and coupons. Taking advantage of what’s on sale at the supermarket is not only a great way to save on groceries but will keep your meals varied and interesting.

Shop After the Holidays

We see it every year, after holidays like Christmas and Halloween specialty items straight to the sale section. Take advantage of this shopping cycle by stocking up on specialty items that can be used year-round.

3. Planning and Budgeting

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The best way to avoid the “why can’t I save money” burnout is by creating a budget plan for your life. Having a plan for how much you can spend does two things:

1. It forces you to focus on what you need vs. what you want
2. It lets you know when you’re overspending and where to cut costs

Planning is key. Create a shopping list before you go grocery, household, or “for fun” shopping. Writing a list before shopping helps you avoid impulse purchases. Pro tip: if you squeeze your shopping in between other errands you won’t have time to consider extra items you probably don’t need! 

You can also plan and budget by setting up automatic savings through your banking apps. By setting up automatic transfers from your checking to your savings account you’re cutting out the unrelatable middle man managing your savings, aka you! A second way is to have your employer automatically allocate a portion of your check to a special fund. This would work better for long-term savings like a retirement account or 401K.

The 50-20-30 Budgeting Rule

Do you know that budgeting involves more than just paying your bills on time? Preparing a budget helps you to determine how much you need to spend and on what. If you are having problems with budgeting, the 50-20-30 budgeting rule will help keep your spending in line with your savings goals. Have you heard of budgeting methods, but don’t know which to pick? Try following the 50 20 30 budgeting rule — one of the easiest, most common budget plans. 

Adults, especially young adults, are encouraged to follow the principles in this budgeting system. The sooner you know how to achieve a balanced budget, the sooner you can go to the next step where you can customize the rule to fit your own unique experiences and goals.

Essentials – 50% Of Your Income

The budgeting rule states that you need to set aside 50% of your income to take care of the necessities in your life. It may seem like the percentage is high, but the truth is that the items that fall into this category make it easy to understand why you need that much (especially in high-inflation years). 

What are essentials? Essentials are all expenses that you have to pay every month whether you work or not. Everyone has essentials to pay and the expenses include utility bills, transportation costs, food, and housing. The 50% lets you adjust as you maintain a sound, balanced budget. Once you have calculated how much you need to set aside for essentials, it makes it easy to decide whether you can comfortably sustain your current lifestyle or need to adjust it.

Savings – 20% Of Your Income

You need to dedicate 20% of your total income toward savings. Savings are meant to help you when you need to clear debts or need money for a rainy day. Savings should be set aside immediately once you finish paying for essentials and you should never compromise. Consider savings as your get-ahead money to help you live a frustration-free future. Young people tend to ignore this rule simply because they think they have all the time to save. The truth is the sooner you start applying this rule in your life, the sooner you will enjoy total financial freedom.

Personal – 30% Of Your Income

This last category in the budgeting rule can make a big difference in your budget. It involves the amount of money you spend on enhancing your lifestyle. It is unfortunate that so many people consider luxuries a mandatory expense. The truth is that we need to spend on personal items, but at the same time you need to decide whether spending on something is a luxury or a necessity. Once you have set aside 30% of your income, take some time to decide whether you really need to pay for an item or whether you can do without it. The less you spend in this category, the more progress you will make in terms of securing your future and paying down debt.

Save Money Over Time With Our Tips

Before this budgeting rule can really start making a difference in your life, you may have to make lifestyle changes and sacrifices for the first few months. Saving money over time for a large purchase requires dedication and lifestyle tweaks. The tips we provided above are just some of the simple lifestyle changes you can make to start saving money today! By taking these actions you’re bringing yourself one dollar closer to your dream purchase.

All the sacrifices will be worth it since you will gain more financial freedom over time. Once you have enough savings, you can even send your loved ones money via Sharemoney to help out when they need your help.