Financial rule 50-20-30

By | August 21, 2016

Financial

Financial rule 50-20-30, a great system

We used to think that a saving habit depends on how much money we earn and this is a very logical thinking: if our salary is too low we’ll probably use it all for the basic needs like food, home, etc. But even if we have extra money, we use it for fun leaving the saving habit aside. Well, one of the most famous financial rules is the one called 50-20-30. This financial rule is very simple: 100% is the money you have, 50% goes to our basic needs, 30% to our personal needs that might not be necessary (gym, dinner out, etc.) and the 20% left goes to the savings account.

This system was created by Elizabeth Warren, a Harvard professor and it is explained in detail on her book “All your worth: the ultimate lifetime money plan (free press)”, co-written with her daughter Amelia Warren.

50% for basic needs

In this case, it will be all needs for living, food, house, car services and invoices. This is the most complicated step, but if we can reduced our expenses to the 50% of our salary we will have most of the job already done.

20% for savings

This is the most painful part (short term), only a few people will like to spend money on something they will enjoy on the future. This category includes a retirement plan; even though the word “retirement” does not mean much when you are 24 years old, you can simply make sure to take advantage of starting sooner and you’ll have greater interests. It will be better if you save your money on a different account from the one that you use on a daily basis.

30% for fun

We all need it, and if you think about it in a good way, this percentage for fun is in fact a huge amount. This is the last step, because it will be very comfortable for you to have a dinner out thinking that all your expenses are covered and that you have also money on your saving account.

Salomon Juan Marcos Villarreal, as a great businessman from Mexico, takes the financial education very seriously and thinks this plan is great. “The only think is that we need to be very careful and capable of knowing the difference between what we want and what we need, this will be the key”, said Salomon Juan Marcos Villarreal, president of Grupo Denim.