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Did you open up a lemonade stand when you were a kid? Did you sell cookies or treats when you were a kid? Did you ever do chores, mow the lawn, or perform household tasks to receive an allowance? Many of us have had experiences on earning money way before receiving 1099s and W2s. But how many of us have had experience in allocating our earnings?
To allocate funds is to set them aside for different purposes. While that is a simple truth and concept, putting it into action can be a bit challenging. In the adult world, unexpected expenses surprise us and pull money out of our checking account. A tire gets a flat, which derails our plans into investing into a motor company's stock. Our family member is going through an unexpected health challenge, and now we have to take care of the hospital bills and doctor visits.
Life happens. How we respond and handle these financial curveballs will determine our financial trajectory in the future. Whether we want to admit it or not, we have to allocate our funds properly and either cut back on expenses or increase our workload. Well, what if we told you that allocating funds is much simpler than taking on an extra job? After all, studies have been shown that people working 2-3 jobs can barely keep food on the table (and this was done in a recent post-COVID survey).
Instead of applying for your fourth job, why not utilize the money you already have? The best way we have tested is using what is called the 50/20/30 rule. This rule was a method devised by Acorns®, one of our most recommended investing tools for those interested in building and accruing savings through spare change. In an article they posted, they discussed how the 50/20/30 rule is applied in our finances:
50% goes towards our needs (needs can be classified as the phone bill, electric bill, housing expenses, groceries, etc.)
20% goes towards investments (investments can be through Acorns, investing in stocks, investing in forex, investing in bitcoin, etc.)
30% goes towards wants (wants can be classified as eating out, going to the mall, shopping for gifts, going to the movies, etc.)
We have tested the 50/20/30 method. Our results were as follows:
For the 50%, we paid immediate bills and expenses. For the 20%, we put our investments into a savings account until we had enough built up to put towards investments. For the 30%, we saved it for a "rainy day", such as emergency grocery runs or taking care of unexpected bills. We broke up our income with this method and had just enough - if not more than enough - to take care of everything! In short, this rule works. And the best part about this rule is it helps build budgeting discipline. Now, instead of blindly spending money, we can track our expenses and see what we need to cut back, what we need to keep, and what we need to negotiate when it comes to our bills.
You can do the same thing with your current income. You don't have to change your job, nor add a new job. Rather, this 50/20/30 rule is applicable for all living situation types. Yet, what if we told you that this rule's concept has been around for thousands of years? Yes, there is one, age-old method that is similar to the 50/20/30 rule those in ancient times used. But, that is a discussion for a later post!
We hope this method has been very helpful in budgeting and planning your expenses. Of course, the results we experienced and shared may differ from your experiences. But we encourage you all to give this method a try for one month and see how it affected your wealth management discipline. Let us know what you think down in the comments below. If you have a similar method or something even better than the 50/20/30 rule, let us know in the comments below as well. And don't forget to leave a heart and share this post to your friends and family!
Until next time, stay wealthy, my friends!
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