What’s up future millionaires? I’m gonna share with you the reasons why I don’t like the 50/30/20 Rule.
For those who are not familiar with it, the 50/30/20 rule represents how much you need to spend based on needs, wants & savings respectively.
While it is good that people are finally taking more care of their personal finances with this rule, I feel there needs to be more adjustment.
Create 40/10/50 Budget
I personally don’t like the idea of the 50/30/20 Rule.
The ’50’ needs should be reduced, for example, try staying in a cheaper apartment, or rent out a room in your house to reduce your monthly installment.
My personal view is that the 30 wants also needs to be reduced. Avoid from spending on luxury goods – or try to reduce spending at least. Sacrifice today so you can leave a better life tomorrow.
Instead, add more into the savings/investment. This increases from 20 to 50 giving you a lot of cushion for investment and money for emergency.
Therefore, I feel the 50/30/20 rule should be re-introduced as 40/10/50 instead.
When I was in my mid-20s, I worked while doing my studies. Even then, I managed to save up to 80% or sometimes more from my income. Most of that savings are put into investment. I could do this back then since I didn’t have much commitments. That was about 10 years ago.
The reason I’m sharing this is demonstrate to you that the Rule is also time dependent. If you’re a single bachelor, it’s always the best idea to put more money into savings/investment since there aren’t much monthly commitments for you to make.
My Final Two Cent
My final two cent? Don’t get too caught up with the 50/30/20 Rule. Use it as your guideline. My rule of thumb, try your best to have higher percentage for savings/investment.
I know not able to spend money on your wants sounds terrifying after hard days of work.
But this is only temporarily till you can live on dividends alone – which you can loosen up the strict spending then.
Let me know in the comment section below if you feel otherwise. Cheers.