What is the 50/20/30 Rule?
This is a popular modern financial guideline that dictates how to distribute your after-tax income.
50% fixed costs (bills, transportation, groceries, needs)
20% savings (savings account, retirement)
30% flexible costs (dining out, entertainment, wants)
The problem with the 50/20/30 Rule is that it is not designed to get you out of debt, save aggressively, or achieve early retirement!
Why You MUST Do Better than 50/20/30
Many millennials are leaving college and entering adulthood with the extreme disadvantage of carrying student loan debt. This debt, in conjunction with it’s buddies, car payments, rent, and credit card debt, leave a lot of people feeling financially trapped. This weight is enough to keep people in a job that isn’t professionally fulfilling, in a location that isn’t desirable, and in some cases even in a relationship that isn’t healthy. This burden will affect our economy as it is stunting our generation from major next-steps in life, such as home ownership, starting families, investing, and potentially the ability to retire on time.
Not to mention, this rule doesn’t address the need for short-term savings for large costs such as cars and down payments on a house. Investing, a huge factor in financial stability, is not even factored into the current 50/20/30 equation.
In order to get out from student loan debt, you must attack your debt with vigor and rage. Doing this requires rearranging the 50/20/30 equation. Your goal is to aim to save as close to 50% of your income as possible and apply it to your debt. If you are not carrying debt, still aim to save 50% for your short-term savings, retirement, and investments.
50% savings (apply to debt, short-term savings, retirement, investments)
20% flexible costs (dining out, entertainment, wants)
30% fixed costs (bills, transportation, groceries, needs)
How to set your sights on 50% savings and rearrange the old 50/20/30 Rule to make you a debt-blasting powerhouse will be discussed in my next blog post!