What is the 50-30-20 rule for saving money and why does it work?

Who hasn’t had money problems at some point? It often happens that it becomes difficult to manage income and so does trying to generate savingsFor this reason, if you belong to this group and want to change your behavior, we offer you a method, called the 50-30-20 rule, that will change your life.

What is the 50-30-20 rule?

This idea first appeared in the book All Your Worth: The Ultimate Lifetime Money Planof Elizabeth Warrena United States senator. In it she gives details on how control finances to always have savings.

At first, it’s important not to be scared by the name of the formula, as it’s easier to apply than it seems. If you’re looking to manage your period easily and effectively, you’ll need to understand what the rule is like.

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The 50 refers to the fact that half of the income must be destined to cover the major expenses, such as market purchases, services and leasing.

The 30thon the other hand, is for expenses that are defined as expendable: Yodining at a restaurant, buying tickets for the cinema or theatre or visiting bars with friends. Anything that involves fun or hobbies would also fall into this category.

Finally, the 20threfers to what should be allocated to surplus or savings. In this way, if you repeat this practice every month you can begin to have a future with best plans.

Tips to reduce expenses

While the formula sounds easy to read, it is more complex when it comes to putting it into practice. To start getting ideas on how to optimize expenses, we leave you with these recommendations.

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If your basic expenses exceed the 50% you should allocate to essential expenses, you can consider:

-Reduce as much as possible the expenses related to the supply of gas, electricity and water.

-Choose appliances with energy-saving features.

-Review the services you have contracted and see if there is a way to save on them.