MONEY MANAGEMENTS TIPS AND TRICKS

 

      

           Money management is the process of expense tracking, investing, budgeting, banking, and evaluating taxes of one's money which is also called investment management. Money management is a strategic technique to make money yield the highest interest-output value for any amount spent.

Almost all the youth are not able to manage their budget. We have more expenses than our income it always looks like we are going in minus from our salary and struggle to save some money.

So to save money we can apply the 50/30/20 rule. Don't get panic I will explain to you guys what is 50/30/20 rule is money management. The 50/30/20 rule is a straightforward monthly budgeting method that tells you exactly how much to put towards your savings and your living costs each month. The 50/30/20 rule is an easy budgeting method that can help you to manage your money effectively, simply, and sustainably.  The basic rule of thumb is to divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants,
and 20% for savings or paying off debt.


The 50/30/20 rule simplifies budgeting by dividing your after-tax income into just three spending categories: needs, wants, and savings or debts. 
Knowing exactly how much to spend on each category will make it easier to stick to your budget, and help keep your spending in check. Here’s what a budget that adheres to the 50/30/20 rule looks like: 

Spend 50% of your money on needs

Simply put, needs are expenses that you can’t avoid—payments for all the essentials that would be difficult to live without. 50% of your after-tax income should cover your most necessary costs.

Needs may include:

  • Monthly rent

  • Electricity and gas bills

  • Transportation

  • Insurances (for healthcare, car, or pets)

  • Minimum loan repayments

  • Basic groceries

For example, if your monthly after-tax income is €2000, €1000 should be allocated to your needs.

This budget may differ from one person to another. If you find that your needs add up to much more than 50% of your take-home income, you may be able to make some changes to bring those expenses down a bit. This could be as simple as swapping to a different energy provider, or finding some new ways to save money while grocery shopping. It could also mean deeper life changes, such as looking for a less-expensive living situation.

Spend 30% of your money on wants

With 50% of your after-tax income taking care of your most basic needs, 30% of your after-tax income can be used to cover your wants. Wants are defined as non-essential expenses—things that you choose to spend your money on, although you could live without them if you had to. 

These may include:

  • Dining out

  • Clothes shopping

  • Holidays

  • Gym membership

  • Entertainment subscriptions (Netflix, HBO, Amazon Prime)

  • Groceries (other than the essentials)

Using the same example as above, if your monthly after-tax income is €2000, you can spend €600 for your wants. And if you discover that you’re spending too much on your wants, it’s worth thinking about which of those you could cut back on. 

As a side note, following the 50/30/20 rule doesn’t mean not being able to enjoy your life. It simply means being more conscious about your money by finding areas in your budget where you’re needlessly overspending. If you’re confused about whether something is a need or a want, simply ask yourself, “Could I live without this?” If the answer is yes, that’s probably a want. 

Stash 20% of your money for savings

With 50% of your monthly income going towards your needs and 30% allocated to your wants, the remaining 20% can be put towards achieving your savings goals or paying back any outstanding debts. Although minimum repayments are considered needs, any extra repayments reduce your existing debt and future interest, so they are classified as savings.

Consistently putting aside 20% of your pay each month can help you build a better, more durable savings plan. This is true whether your ultimate goal is building an emergency fund, developing a long-term personal financial plan, or even preparing for a down payment on a house.

And it’s impressive how quickly the savings can add up. If you bring home €2000 after tax each month, you could put €400 towards your savings goals. In just a year, you’ll have saved close to €5000!

How to apply the 50/30/20 rule: a step-by-step guide

So, how do you actually use the 50/30/20 rule? To put this simple budgeting rule into action, you’ll have to calculate the 50/30/20 ratio based on your income and categorize your spending. Here’s how:

1. Calculate your after-tax income

The first step to using the 50/30/20 budgeting rule is to calculate your after-tax income. If you’re a freelancer, your after-tax income will be what you earn in a month, minus your business expenses and the amount you’ve set aside for taxes. 

If you’re an employee with a steady paycheck, this will be easier. Take a look at your payslip to see how much lands in your bank account each month. If your paycheck automatically deducts payments such as health insurance or pension funds, add them back in.

2. Categorize your spending for the past month 

To get a true picture of where your money goes each month, you’ll need to see how and where you’ve spent your income over the past month. Grab a copy of your bank statement for the past 30 days, or simply use the Statistics feature in your N26 app. It automatically sorts all your transactions into categories such as Salary, Food & Groceries, Leisure & Entertainment, and more.

Now, split all your expenses into the three categories: needs, wants and savings. Remember, a need is an essential expense that you can’t live without, such as rent. A want is an additional luxury that you could live without, such as dining out. And savings are additional debt repayments, retirement contributions to your pension fund, or money that you’re saving for a rainy day. 

3. Evaluate and adjust your spending to match the 50/30/20 rule 

Now that you can see how much of your money goes towards your needs, wants and savings each month, you can start to adjust your budget to match the 50/30/20 rule. The best way to do this is to assess how much you spend on your wants every month.

According to the 50/30/20 rule, a want is not extravagant—it’s a basic nicety that allows you to enjoy life. As cutting back on your needs can be a complex and challenging task, it’s best to work out which of your wants you can cut back on to stay within 30% of your take-home income. The more you reduce spending on your wants, the more likely it is that you’ll be able to hit your 20% savings target.

50/30/20 rule spreadsheet

While an online 50/30/20 rule calculator can provide a general overview of your ideal 50/30/20 rule budget, a 50/30/20 rule spreadsheet is a good option if you’d like to create a more in-depth budget.

Spreadsheet software such as Microsoft Excel, Google Sheets, and Apple Numbers all offer premade templates to help make spreadsheet budgeting easy. You can find plenty of free online 50/30/20 rule spreadsheets that are compatible with whichever program you’re using

You can try this money management app for your personal use which is free to everyone globally Pocket guard





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