Are you making good money, but still finding that you don’t have enough for the month? If so, it might be time to plan your budget better. My advice: Respect the 50-30-20 rule. It’s a simple way to manage your household finances. With this your financial planning will be on point and easily manageable. Plus, you’ll have enough money left over to spend and save!

This is how the rule works:

The formula divides your money into three parts of varying size. The largest part is 50% of your monthly income, the second part is 30% and the last part is 20%.

50%: Yes, the biggest cost to you is probably your overhead. According to the 50-30-20 rule, these should not exceed 50% of your income. This means that half of your income is spent on mortgage/rent, car, electricity and food. (Food is defined as a normal basic need).

30%: Use 30% of your regular income for what you want to do. Whether holidays, leisure, shopping, going out, leisure activities: What you spend your money on is up to you – anything that gives you pleasure is allowed. However, if you plan to spend more money in the near future, for example on expensive electronics, furniture or travel, you should regularly save a few months in advance. In this way, the fee for the month of purchase will not be too high and you will not be overly restricted financially. To this end, a budget sheet can be useful to create a precise list of income and expenditures and to get an overview of the amount remaining at the end of the month.

20%: This rule allows you to withdraw some of your money each month and put it in a savings account.

Financial planning through mobile apps

If you plan your spending with the 50-30-20 rule, a financial application like Moneywyn (available for iOS) can help you. You can divide your spending into the categories “needs”, “wants” and “savings”. You will then be shown what percentage of your income you have spent in each of these categories. Then you can see how well you have met the 50-30-20 rule.

You can also use the My Budget app (for iOS and Android) to track your spending. The free Budget Book app gives an overview of income and expenditure and can be used by the whole family.

Example of the simple 50-30-20 rule for savings

If you earn a gross income of $2,160 gross or roughly $1,567 net per month- then the 50-30-20 rule applies to you this way:

50 %: $783.5 is earmarked for fixed costs

30%: $470.1 is available for leisure activities

20%: $313.4 is there for the savings

If you follow the 50-30-20 rule for a year, you can spend $5,641 per year on the good things in life and save $3,760 at the same time.

By the way, if you can save 20% per month, you are at the top of the list. Because the average American only saves 5% of his or her income.

This rule is a good reference point and is not fixed. My monthly savings rate also fluctuates. But calculated over the year, the savings target of 20% is achievable. Furthermore, it is wise to set a high target even if it is not fully achieved. Because a high target will force you to work harder to achieve an optimal budget.

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