Budgeting doesn’t need to be difficult or time consuming. We all know students have more exciting things to do than sit around creating a budget template. But sometimes, the best ways to budget are often the simplest!
Did you know, financial wellbeing is about how you manage your pot of money regardless how much you have? It’s about making sure that you can cover your day-to-day expenses, plan for your future and cope with the unexpected. The first step to improving your financial wellbeing is to know exactly how much money you have coming in i.e. your savings versus how much you have going out i.e. your spending.
No matter how much money you have or where you get it from i.e. your job, pocket money or birthday and Christmas money, you need to know how to manage it effectively, so that you can make the most of it.
That’s where the 50 30 20 Rule comes in handy.
How does the 50 30 20 Rule work?
It helps bring balance to how you budget and manage your money. Using this simple yet valuable rule can be so effective as you learn to split your money between your needs, wants and savings, creating a really positive habit for life.
Needs are those items that are essential in our day-to-day life. Things we can’t do without. Think of a roof over your head, sufficient food to eat and clothing. For the most part, these are usually recurring expenses that you pay regularly.
Examples of needs include:
- Food
- Water
- Shelter
- Clothing
- Safety
Wants are those nice to have items that you don’t necessarily need to survive, but make your life more comfortable and fun. They may not be something you pay for on a regular basis and are often considered to be luxury buys. Nice to haves.
Examples of wants include:
- Travel
- Entertainment
- Video games
- Designer clothing
- Junk food
- Fancy high end gadgets
When you save with a purpose, like wanting the latest mobile phone, tickets for a festival or even that cool school trip to Italy, you are far more likely to stay motivated and on track. At least 20% of your income should go into savings. Putting even more in, means you’ll reach your goal faster.
When your goal is saving, ‘wants’ can be difficult to manage. It’s important not to give in to impulses that drive you to spend unnecessarily. ‘Wants’ can snowball from small things into bigger things. Before you know it, your savings goals and financial future plans are impacted and you’re back to square one. If you live by the 50 30 20 Rule, 30% of the money you get should go towards wants.
'Needs' we can’t do without. Whatever your need, according to the 50 30 20 rule, 50% of your income should go on your needs. When spending on things you need e.g. a new laptop or iPad for school, be money smart. Do your research, compare prices and shop around for the best deals before you spend your money.
Creating your own budget is a simple as that.
The 50 30 20 Rule is there to help you develop good financial habits that will pay off in the future, especially when you are likely to have a lot more money to manage. By introducing these habits now, you are setting yourself up for a very bright future.
If you only take one thing away from all of this, let it be this super smart budgeting and money management strategy, the 50 30 20 Rule!
