Africa-Press – Liberia. The ‘50-30-20’ budget rule is a planning strategy that helps a person divide their income into categories that make it easy to plan for spending as well as saving.
In order to reach your financial goals, it is just as important to plan for how you spend your money, as it is making it. Going by this rule, a person should spend up to 50% of their income on needs and obligations, 30% on their wants and the remaining 20% should go into savings.
Simon Muramira a finance chief explains that why this is important, is that a person is able to allocate their money respectively instead of spending it randomly.
Without a proper budget, it is possible to make money and not understand where it goes. We need a budget to help us track our expenses, but also, to make sure we spend the proper sums in the desired places, he says. According to Investopedia, this rule is a template that is intended to help individuals manage their money and save for emergencies and retirement.
50%: Needs
Needs are those bills that you absolutely must pay and are the things necessary for survival. These include rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities.
30%: Wants
Wants are all the things you spend money on that are not absolutely essential. This includes dinner and movies out, that new handbag, tickets to sporting events, vacations, and the latest electronic gadget.
20%: Savings
Finally, try to allocate 20% of your net income to savings and investments. This includes adding money to an emergency fund in a bank savings account and investing in the stock market. You should have at least three months of emergency savings on hand in case you lose your job or an unforeseen event occurs. After that, focus on retirement and meeting other financial goals down the road.
Why should you budget?
Valens Bikorimana a sales assistant shares that he normally budgets for his monthly income a month ahead. This he says enables him to plan into the future for what he should and shouldn’t spend on. He says adapting himself to budgeting didn’t come easy, but after practising it for some time, he realised how easy it made his financial planning.
“Budgeting is important because it helps you track your income, how you spend it and what to save. It puts plan on paper, which makes it easy to visualise where you are and where you want to be in terms of your financial goals,” he explains.
Without a budget, it’s hard to control your spending, Muramira says; you spend on impulse and this in the end makes it hard to track your expenses or even save any money.
“Budgeting can help you make good financial decisions, because you are clear on what you earn, hence plan with in your means. Without planning, it’s very easy to find yourself in huge financial debt.”
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