Controlling personal budgets can be a problem for many people. Reasons include not knowing how much to spend on each budget category, how much to spend on lifestyle activities, and how much to allocate to a financial reserve or debt repayment. If this is your case, there is a very simple method that will change your personal budget once and for all. This is the so-called rule 50-15-35.
The main thing is to understand how it works and how it can help you catch up, not to mention how you can efficiently put your financial affairs in order with it.
What is the rule 50-15-35?
Rule 50-15-35 works, as they say, in a completely elementary way, however, some nuances will still have to be taken into account.
To get started, simply divide your income into three broad categories and calculate each part of your expenses: 50% for basic expenses, 15% for financial priorities and 35% for expenses for everything else. Separating and setting goals makes it easy to control expenses and help determine which categories are the biggest villains in your personal budget.
Significant expenses should consume 50% of income
According to rule 50-15-35, 50% of your net income should be allocated to basic expenses.
These expenses include categories such as transportation, food, housing, healthcare, market and education, and that’s all you depend on in your daily life.
15% go to financial priorities
After allocating 50% for basic expenses, you need to allocate 15% of net income to financial priorities. If you have debt, you will use this amount to pay it off. Those who have finances should use this part to save money (create an emergency fund, develop a private pension plan, make long-term investments).
Financial priorities are important financial goals for maintaining an adequate standard of living in the future, so consider what is important for you to determine how you will invest this part. Remember that those who have debts may have to spend at least 15% of their net income for some time to balance their financial situation.
On expenses for leisure and hobbies - 35% of the budget
Lifestyle expenses include hobbies, leisure, entertainment, and the like. This also includes visits to a beauty salon, bars and restaurants, travel, classes in gyms, shopping, purchase of personal hygiene items.
For life, allocate 35% of your net income for these categories. But in order for the rule to work, it is important to understand that lifestyle expenses should always be organized with a lower priority than basic expenses.
In addition, if your goal is to save a little more money to achieve some other goal, for example, to acquire real estate or to obtain a master's degree in business administration (or any other education), categories related to lifestyle may have the greatest potential for saving costs, but at the same time their priority, according to the basic rule, still does not change.
Understand why the rule will change your personal budget.
Rule 50-15-35 helps set spending goals, which is important for those who want to organize their financial life. Applying it to your personal budget, you can determine what main categories of expenses you have and how much you actually spend on each of them. In addition, using the rule is easier to find out what priorities should be considered in your budget and what expenses may still appear.
Tracking expenses looks a lot easier. Allocating 35% to a “lifestyle” or something without which you cannot imagine your existence, you get rid of the main enemies of financial health: impulsive purchases and unnecessary expenses. Establishing a portion of net income for financial priorities is also a guarantee that debts will be paid off and savings will become a habit in the future.
How to apply rule 50-15-35 in action?
To start applying rule 50-15-35, the first thing you need to do is to organize your accounts, dividing them into three broad categories presented in the rule. By listing all your net income and expenses, you can analyze how much you spend in each area and make appropriate adjustments to stay within the set limit.
After listing all expenses, you may need to make some adjustments to stay within the rule. If you have exceeded your spending goals in any category, cut as much as possible. It is always easier to start by reducing lifestyle-related expenses such as leisure, personal care, and the purchase of more expensive goods. Also consider reducing some important costs, such as electricity and telephone bills, by changing your habits at home.
After planning your personal budget, it is important to monitor whether you have achieved your goal and, if necessary, adjust your own financial flows.
If, for some reason, the desired result is not achieved at first, say, don’t be discouraged, but try to analyze your expenses again. It may well be that somewhere you made a mistake or were too carried away by embezzlement. In any case, some acceptable solution will still be found. It will not be possible to identify the error the first time, once again see how you need to organize the budget for the rule to work. And it really works very clearly. And it is proved by many examples. Not for nothing that many readers respond about this unique technique in the best way.