It is almost 2022, which means it’s time to get your finances in order for the new year. Budgeting, saving, and investing are the three key pillars in getting your finances on track to reach your goals.
The 50 30 20 budget plan is one of the most popular financial plans as of right now, and it can set you up for success.
Whether you’re planning a big purchase (like buying a house) or just trying to grow your wealth, the 50 30 20 budget plan is an excellent place to start.
However, I have created a new and revised budgeting plan that will save you even more money. Here is everything you need to know about the 50 30 20 rule and an even better alternative.
What is the 50-30-20 Rule?
The controversial Senator, Elizabeth Warren, devised the 50-30-20 rule. It is a budget plan set forth to help you manage your money more effectively.
The plan takes your after-tax income and divides it out to needs, wants, and savings.
You take your after-tax income, and 50% of what’s left will go to needs (bills, groceries, and gas), 30% will go to wants (clothing, cars, Spotify subscription, Netflix, etc.), and the remaining 20% of your money goes towards your savings.
- 50% of your after-tax income: Needs
- 30% of you after-tax income: Wants
- 20% of your after-tax income: Savings
The Pros and Cons of 50-30-20
Pros
The 50-30-20 budgeting plan is a great place to start, especially if you have never used a budgeting plan for your money. It teaches you how to manage and save your money.
These are vital skills because how you manage your money dictates whether or not you’ll be wealthy in life.
Cons
If you are an experienced budgeter, this plan may not save you as much money as you would like. Spending 30% of your income on “wants” can be a bit extravagant, especially if you don’t live on a huge salary.
The Revised Budget Plan
The updated version of the 50-30-20 rule is the 50-20-20-10 Rule.
The outline of 50-20-20-10:
- 50% of your after-tax income: Priority Spending (Tuition, bills, loans, gas, groceries)
- 20% of your after-tax income: Savings (high-yield savings account)
- 20% of your after-tax income: Investing (stock market, real estate)
- 10% of your after-tax income: Flexible Spending (your wants)
Why 50-20-20-10 is a Better Plan
The 50-20-20-10 budget plan allows you to invest and save more of your income, allowing you to grow your wealth faster. Investing puts your money to work, so that you’re earning money IN YOUR SLEEP.
You can learn how to invest in this post here.
Savings are also important in case of short-term large purchases and emergencies.
I recommend a high-yield savings account because your traditional bank savings account is earning very little to no interest on your money.
A high-yield savings account will give you a higher rate of return on the cash you have in savings.
[RELATED POST: 14 OF THE BEST SAVING TIPS TO BOOST YOUR WEALTH]
I hope you learned a little bit more about the 50-30-20 budget plan in this post. Any amount of savings is good when you are learning how to manage your money, so don’t feel like you have to save or invest these specific amounts. Begin saving as much as you can, and then try out these budgeting plans!
Xo,
Layton
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