Many good things come in threes. Just think of the three little pigs, the three primary colours that make up all the others, and the Hanson brothers – especially now that they’re all grown up.
Isaac, Taylor and Zac have grown up nicely, haven’t they?
Budgeting is also made easy when you divide your expenses into three separate categories every month and spend your income accordingly. This is known as a 50/20/30 budget
And to make it even simpler, we’ve used something else that comes in threes.
Rock, paper, scissors and the 50/20/30 budget
Let’s break it down to begin with, and then we’ll jump into the details of every part of your budget.
The 50/20/30 budget divides your monthly income into three different boxes: 50% of it should go to your fixed expenses, 20% goes to long-term savings and debt and the remaining 30% is what you have left at the end of the month to spend on any other expenses that might arise.
It is the ideal budget for spending your money responsibly. If you are not able to follow these principles now, it is something to strive to.
There’s an easy way to remember this, and it’s found in something simple that many people still use today to make decisions: rock, paper, and scissors.
Paper – The bare necessities
It is recommended that not more than 50% of your income should go to your fixed expenses every month. Fixed expenses rarely change and include your rent, car payments, insurance, transportation and food.
50% of your income might seem like a lot, but if you take into consideration that it covers all your necessary living expenses it isn’t all that much.
You can also consider including any subscriptions that you might have here, like internet or cell phone payments, or debit orders for medical aid schemes that you have committed to on a monthly basis.
How to remember it: Five fingers, 50%. It’s simple.
Scissors – Get ahead
Experts recommend that you use 20% of your income to get ahead financially. This can be done by settling some of your debts, saving some money or investing in retirement annuities.
In this box we’re talking long-term savings, not short-term savings for things like holidays. Although these expenses aren’t essential in the sense that you’ll be homeless if you don’t pay them, they are commitments that you make for financial security in the future.
How to remember it: Scissors, two fingers, 20%.
Rock – A bird in the hand
This is what is left when you’ve covered your more important costs. To put it simply, these are your day-to-day expenses that relate to your lifestyle choices. Here we’ll include things like hobbies, entertainment, eating out and groceries.
When it becomes time to revise your budget because things are a little tight, this is also the first place you can look to trim. Do you really need that much cell phone data in a month? Is that subscription you have for those beauty products really necessary? No? Eliminate them.
The items in this category are largely discretionary, as certain items like your cell phone contract might be listed here or in the 50% category, depending on whether it is really necessary or if it might be a little more flexible in its details.
How to remember it: Your fist represents the bird in your hand, the money left when you’ve covered the most important things.
Remember, cutting down on luxury expenses will put you ahead in terms of saving.
To sum it up: The 50/20/30 budget is a tried-and-trusted method for effectively managing your income, but nothing is set in stone here. Everyone’s income and expenses differ.
You can adapt this plan to better suit your individual needs once you know what these needs are. Using these guidelines should help you to manage your finances and to get a better idea of what your expenses look like every month, which is always a good start for any budget. Happy budgeting!