In todays post, I’m going to be showing you an absolutely fantastic way to not only save money and build financial freedom, but to do it all whilst still having fun and enjoying some of the finer things in life along the way.

This Money saving technique we are talking about is called the 50/30/20 rule.

It was made popular by Senator Elizabeth warrant in her book All your Worth: The Ultimate Lifetime Money Plan but realistically, this is a method people have been doing for years and has been found to be one of the best ways to save money whilst still maintaining a healthy quality of life.

Work out your NET INCOME

So the first thing that you need to do before we even get into the 3 main areas, is you’re going to need work out as closely as possible, how much money you are earning after tax, with after tax being the key key word.

For most people this is going to be a 9-5 job, but if you have a second job or a side hustle, you’re going to want to combine all of this which in turn, is going to give you your NET MONTHLY income. This is so important to get as accurate as possible as this is going to be your guideline for splitting your money out using the 50/30/20 Rule.

So now we have that, what we are going to do, for every single piece of income that comes into your bank account, we are going to be dividing it up 3 different ways.

50% towards your NEEDS

Starting off, you are going to be putting 50% of your after tax income towards your needs.

These are going to be the essentials that you need to survive. Things in this area would of course include mortgage or rent payments, your groceries, car payments, insurance, etc. Basically, anything that is a must have for daily living will go into this section.

This area is by far the most important to get locked down and one of the things you may even need to take some time to review if it’s a little off.

For example, lets say your after tax income is £2000 and your needs are coming out at £1300 meaning your living £300 above your needs. This could be a warning sign to make some fundamental changes to the way that you live. You could be potentially spending to much on your weekly groceries or maybe you could change your car to cheaper one per month. This is not to say you should never have a nice car or have avocado toast every morning for breakfast, the key point here is to make sure that these things never surpass 50% of your total income.

One pro tip that helped me massively, is actually just creating a separate bank account dedicated for my bills and all I do on the 1st of every month is transfer my allocated 50% over to that card, lock that card away in a draw and I know I’m never going to have to worry about it. This is going to take all the stress away from worrying about paying the bills and is going to make the next two things Im going to talk about much easier.

30% towards your WANTS

Okay so next up, 30% of your money is going to go into a pot which is going to be classed as your wants.

As you have probably already worked out, your wants are going to things you spend money on but if you didn’t, you’ll still be okay as they are not absolute essentials. I’m sure I don’t need to reel off a long list here but common wants would be shopping trips, going out for dinner with friends and holidays.

Now, one thing some people have got confused in their needs and wants are Gym Memberships. A Gym Membership is a WANT and not a NEED however, some people may argue gym is essential for health and whilst to a certain extent I agree, you always have the option of working out at home.

Once again, I suggest getting another card or creating a section within your banking app to separate these funds so you never overspend.

20% towards SAVING & INVESTING

Finally, we come to my favourite part and that is the remaining 20% of your money to go towards saving and investing.

So first off I would recommended dedicating all your money towards building up an emergency fund in cash that you access anytime. However, once you have done that, I would highly suggest taking this money every single month and investing it to make it work for you.

You could do things like opening up a Stocks and Shares ISA, putting money into a retirement plan or maybe if you have some high interest debts, you can work towards paying those off too.

Conclusion

Regardless of what you do here, it’s vital to put your money to good use. You have yourself covered with your 50% in needs, your having fun with your 30% in the wants category, now is the time to really make your money work for you so you can start building long term financial freedom.

For more content just like this one, don’t forget to SUBSCRIBE to my YouTube Channel!

The post How to Save Money Using the 50/30/20 Rule appeared first on Christos Fellas.