Many people now have part-time jobs. And, of course, they are wondering how to use the money correctly. However, it doesn’t depend on whether you are working part-time or full-time. The main thing by budgeting is to work with your income. You have to understand how much you earn and only then start planning your budget for a certain period.
Perhaps the simplest and most well-known method of planning a family budget is the 50/30/20 principle. It is easy enough to remember and implement it in just 10 minutes, but it gives a complete understanding of how much money to spend on certain needs.
According to the 50/30/20 rule, all income combined in the family budget must be divided into three parts for further use as intended.
So, the first 50% is supposed to be spent on basic needs. This includes:
- the cost of paying debts, if any;
- funds for rental housing, if required;
- payment of utility services;
- payments for the Internet and mobile communications;
- purchase of items of clothing and footwear required at the moment;
- expenses for food and household products;
- payment for using transport or money for car maintenance;
- planned treatment costs, if any.
The second category is lifestyle spending, which, according to the method, accounts for 30% of the budget. This includes buying the items you want. They are not required, but their presence helps to feel the beauty of life.
Desired expenses include:
- visiting cafés and restaurants;
- purchase of delicacies and gastronomic delights;
- purchasing clothes and shoes for pleasure — entertaining shopping;
- the cost of going out (cinema, theatre, sporting events, and other entertainment);
- services of hairdressers, manicure specialists, and other services of beauty salons;
- payment for activities to keep fit (fitness, dancing, swimming, etc.).
The third category includes 20% of funds that are intended to accumulate savings for planned large purchases, investments, and unforeseen expenses. This category is taken into account by the most financially literate people who know how to manage their money.
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So, 20% of family income should be set aside for:
- creation of a financial safety cushion;
- savings for life after retirement, as well as travel and large, expensive purchases;
- a reserve for unexpected expenses (medical care, breakdown of large equipment, gifts, repairs, etc.);
- the formation of personal capital.
The distribution of funds for these categories should be competent and objective — this is the main reason for the ambiguity in the application of this scheme for dividing family incomes. Of course, this distribution can be adjusted based on the characteristics of the spending of each family, but the changes should not be significant. There is a clear financial rule: it is not recommended to transfer money from one category to another within a month.
While the 50/30/20 rule is efficient and accessible, it also has drawbacks. In particular, different views of “necessary” and “desired” in people can significantly change the meaning of the method. It is also not suitable for those who spend most of the budget, for example, on paying off loans or renting a home.
The advantages of the method include:
- Simplicity and availability, lack of complex computing operations and circuits. Therefore, it is ideal for those who are taking their first steps towards financial literacy;
- Clarity. For a financially disciplined person, for example, it will be easy enough to form an idea of the specific amount that they can spend on entertainment and optional purchases;
- Following the rules. It allows you to learn how to form a financial reserve, improve your financial situation and increase your financial assets;
- Reducing the likelihood of a shortage of money for urgent and unforeseen needs.
While the 50/30/20 rule is easy to understand, there can be pitfalls. This method is ideal for those who have a stable income but are not yet able to save money and form personal financial capital.