1. You receive a paycheck monthly
2. You start to think, how you should be using that money
3. You consult with a professional
4. Who tells you about the idea of the 50-30-20
5. 50% goes to living, eating, drinking and going out
6. 30% goes to rainy day fund
7. 20% goes to investments
8. You feel like a smart nerd
9. This all equals the 50-30-20 Rule
Let us break this down
You receive money monthly or bi-monthly from your employer, and you start to think how you should be using that money. You decide to consult with a professional, who tells you to follow the 50-30-20 rule. They explain that 50% goes to living cost, such as food, drinking, rent or mortgage and going out. Now 30% goes to a rainy day fund or your savings account and finally, 20% goes towards investments. Finally, you feel smart like a nerd for understanding the rule and you get ready to implement this in your life. #financialfreedom
This amount goes to your recurring living expenses. Don't forget to include things such as:
This second part is adjustable. Put 30% of each paycheck away until you reach the suggested amount which is about 2-3 months worth of pay for a rainy day. Once you reach that goal, assess your immediate goals (a vacation perhaps?) to determine how much you should be putting in your savings versus investing. If you are comfortable with the amount you are saving, speak with your advisor about changing up the ratio to lend more to the investment proportion.
The final 20%, is also adjustable and goes towards investments. These investments can have different strategies based on what you want to accomplish. A good way to think about how much you should be putting toward investments is to write down your long-term goals; for example: buying a condo, starting a business, or graduate school. Investing ensures that your money is working for you and helps you raise money towards expensive goals much faster by accumulating money from other sources (stocks, real estate, etc.).
While it's important to have money sitting in your bank account, it is also crucial to make sure your money is working for you. Make a timeline according to your goals and take advantage of the growth you can attain by leveraging investments.
Orca mantra believes in the 50-30-20 rule and understands it should be adjusted for your current living situation. This is one of the first steps to take to achieve the goal of financial freedom.