At the start of my personal finance journey, it was difficult to grasp what my spending targets should be. After learning about Elizabeth Warren’s 50-30-20 rule. I had found a framework on which to base my decisions.
It suggests you should spend your after-tax income as follows:
- 50% for needs (rent, food, transport, insurance)
- 30% for wants (entertainment, gym, holidays)
- 20% for savings (investments, paying off debt, saving accounts)
This rule helped me when deciding which country I should move to when graduating. And whether it was financially sound to do so. Since moving to the London, I’ve aimed at decreasing the 50% to grow my savings.
I have managed to shift take it down to around 40% in a couple of years. I cannot say I have achieved my goal but I am on my way.
Currently, I’m saving 43% of my income mostly supported by lockdown diminishing my expenses. Thankfully, it has lead me to increasing my investment rate to 25%. I mostly invest through Vanguard and ETFs although I also invest through Trading 212. (You can get 1 free share worth up to £100/$100 with my link.)
Wealth consists not in having great possessions, but in having few wants. — Epictetus
James
Call me old fashioned but I like getting cash out as it helps me keep track of how much I’m spending.
I find with debt/credit cards your spending doesn’t seem as real, which is when I get more nasty surprises where I’ve spent more than I intended (usually on the small things like drinks and snacks!), though I can see how a tracking app like Emma would be a massive help!
The 50-30-20 is a great approach, especially as the 30 part can easily get out of control!
Thanks for sharing!
Lionel Piguet
I understand James! On my side I see cash as already spent as I feel it is harder to track and disappears into snacks very easily!
Baby Boomer Super Saver
These are great tips for someone who is just beginning their journey on the path to financial independence. I like the 50/30/20 rule, but as someone who did not save for retirement when I was younger, I’m having to save way more than 20% now. There are creative ways to catch-up retirement savings after a late start, it can be done!
Chloë
These tips are super useful! I already bought a physical budget planner to keep track of my expenses – I find it a lot better to keep the overview and I don’t get distracted by other notifications whilst filling it in. I check my banking app at least once a day, to make sure I have enough money for the automatic withdrawels that happen throughout the month, and I make sure to always put a bit of money into my savings account when I receive my salary. That way I restrain myself from splurging too much.
Simone Says GO!
“Making the money real” certainly requires considerable effort for the many of us who primarily go cashless, does’t it… Nice suggestion on keeping daily tabs on expenditure – so simple yet quite effective as you become hyper-aware of your balances & that keeps you in check nicely (unless there’s a shop nearby full of beautiful shoes 🙂
Michelle
I don’t have a budgeting app, but I do my budget on an Excel Sheet with all the formulas and whatnot in it. So I just update it after I’ve gone to the shops etc. It has helped me to see my finances in a new way, because I see exactly what I’m spending my money on and where I can cut back if needed. In addition, I’m also a huge advocate for an emergency fund. Right now I have about seven month’s salary saved up, but my target is to get to a year’s worth of salaries. Anyway, great tips!
All the best, Michelle (michellesclutterbox.com)
Lionel Piguet
Thank you for commenting Michelle!
I use both as the app makes sure I don’t forget anything!
Emergency funds are important but remember (once the crisis is over) there is such a thing as too much saved.
It exposes the money to Inflation!