by Fazila Aspandi 

When it comes to spending, it can be quite difficult to manage as there are a lot of things to buy and a lot of commitments to be fulfilled. Placing a rule to manage your money can help you to be prudent in your spending.  

If you are looking to improve your personal financial management, the 50-30-20 budget rule is a good place to start. This intuitive and straightforward rule can guide you in drawing up a reasonable budget that you can stick to over time, in order to meet your financial goals. Let’s take a look at the infographics below to get a better idea of this rule:  

Source: Infinity Financial Solution 

The first 50% of your income should be spent on your needs and things that are necessary for your survival. These include your rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities. These expenses are inescapable but there are better ways to managing them. If you are spending more than 50% of your income on your needs, you will have to downsize your lifestyle, perhaps to a smaller home or a more modest car. Consider carpooling or taking public transportation to work, or cooking at home more often to save your money. 

The other 30% of your income is meant for your wants. However, just like everything in life and in this rule, your wants should not be too extravagant. Some examples of wants are entertainment subscriptions (i.e. Netflix and Spotify), take-out meals, clothes shopping, and having dinner with friends or family. If you have spent less than 30% on your wants, the rest of your income can be put into your savings.  

The remaining 20% of your income is left for your savings or investments. Your savings are important as it serves as your emergency fund. It is advisable to have sufficient savings for a minimum of six months’ essential expenses. This should be the goal for your savings.

Once you have reached this goal, you can start saving for bigger expenses, such as down-payment for a house or a car. If you have spare funds at hand, consider trying out low-risk investments to grow your savings.

Saving is difficult, and life often throws unexpected expenses at us. It’s crucial to remember the 50-30-20 budget rule as a guide to manage your monthly spending more effectively. Once you start looking at the bigger picture, you’ll be much more disciplined and wiser about your spending behaviour.