Learn 50/30/20 Budget Rule with Three Mind MapsCindy
Do you make a budget for every month spending? How much can you save every month or you often spend over money? If you don’t know how to get your money in order and want to save money, there is an easy and effective way to try. The “50/30/20 rule”. This budget rule was coined by Elizabeth Warren, a Harvard bankruptcy expert named by Time magazine as one of the 100 Most Influential People in the World.
Meanwhile, because of the situations vary from different people, when we use the 50/30/20 rule, we can make some adjustments to match our situation. But in most case, this rule is suitable for most people in every period.
The 50/30/20 rule is simple and required no complicated calculation. To divide your after-tax income into three part, 50% for needs, 30% for wants, and 20% for debt and saving.
Calculate Your After-Tax Income
The after-tax income is what remains after state tax, Medicare, social security. If you got a part-time job or other incomes, remember to add them up.
50% For Needs
Needs are the spending that absolutely essential for survival. Such as housing, eating, traffic payment, and other groceries. The amount that you spend on needs should total no more than 50 percent of your after-tax income.
30% For Wants
Because of the wants spending is based on income, so they can’t be too extravagant. Things such as brand clothes, a trip to Hawaii are a little bit far away from this part. Wants can be movies, dinner, Netflix, HBO, new clothes or handbag and so on. Generally speaking, wants spending is for making life more enjoyable within the reach your financial abilities.
20% For Saving and Debt Repayments
Leave at least 20% of your after-tax income for your debt repayments and save for the emergencies. If your credit card has a minimum payment, then this part belongs to the “50%” needs category.
The “50/30/20” is not fixed, you can adjust the proportion according to your situation.
Next, let us take a young man and a family for examples.
Lily’s Money Plan
Last month Income: 8,000
After tax and social security: 6,097
From the map, we can see that the housing rent accounts for much of the needs. And the needs proportion is a little bit higher than 50%, up to 55%. Lily save it from the wants, therefore the saving and debt repayment proportion maintain at the normal level.
A Family of Three People Money Plan:
After-tax income: 38,000
This family major financial goal is to save for kid education fund and their retirement. So they don’t have to obey the 50/30/20 percentage, and they choose to higher the saving limitation.
From the two examples, we can see clearly where your money has been spent on and to adjust the plan next month. An easy and effective budget rule, the 50/30/20 rule. Now start to make your own budget mind map with Edraw MindMaster.