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The 50-30-20 Budget Rule: How You Can Save Money Faster

What is the 50-30-20 Budget Rule

50 30 20 Budget RuleBudgeting is perhaps the most critical aspect of saving. The key to the 50-30-20 budget rule is to distinguish between wants and desires. The 50-30-20 budget rule derives its name from the concept

  • 50% of income (after tax deductions) should be spent on needs
  • 30% should be spent on wants and
  • 20% should be allocated to savings

So, how do you distinguish between needs and wants? Budget experts assert that a need lies in the eyes of the beholder, which synchronises with the economic concept of money management as well. For example, you “need” to consume food when you are hungry, whereas you just “want” it when you are asked for it.

Why The 50-30-20 Budget Rule Helps You Save More Money

Usually, we find ourselves driven by wants which are often the cause of our eventual over spending. When you realise that creating the potential to save can actually result in extra cash, you can discover how to operate on needs rather than the extravagant “wants”. By distinguishing between needs and wants, the 50-30-20 Budget Rule allows you to save money.

Practical Example to Save Using the 50-30-20 Rule

Cutting Down on Extravagant Grocery Bills – Extravagant grocery bills include purchasing mounds of confectionery sugar, cartons of milk, branded grain bread and juice of upscale variety. Such habits strongly indicate conspicuous consumption and impulse buying since the purchase of such products is meant for instant gratification. Making a few conscious changes, like switching to generic brands on grocery items, can help you save enough money to compensate on other areas where you find yourself falling short.

Keeping Your Utility Bills in Check – The air-conditioner, fans, lights and other appliances that you keep on for longer hours only increase your electricity bill. The same happens when you overuse/misuse microwaves, heaters, and other appliances that run on gas. Keep excessive lighting off and see how your bill drops drastically.

Paying Outstanding Debts on Time – Your debts are a major reason why you end up paying 20% of your savings in the name of interest payments. Avoid using credit cards if you feel you cannot use them responsibly. However, if you have no other choice, only opt for using your card when you are flat out of cash. Always remember to pay off your credit card debt as soon as the monthly bill arrives. It is really easy to ignore the inflating amount of debt as you pay off as little as possible per month to keep your card valid, because the interest rates credit card companies charge are usually higher than your debt.

Allan enjoys talking and obviously writing about saving money and frugality. Over the last 3 years Allan has contributed numerous articles to personal finance blogs and websites. Allan’s favourite topics include savings accounts reviews, budgeting tips and frugal strategies.

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About Allan Jones

Andrew is an active blogger in the personal finance community and has published numerous articles on financial issues. Andrew's favorite topics include special loans, such as bad credit loans and caveat loans, as well as debt related issues.

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