How To Save More Money With The 50/30/20 Rule
July 13, 2022
One of the most popular ways of saving money is to differentiate between your “wants” and your “needs”. We are often told not to give in to our wants unless we have enough money to spare. For example, we should prioritize our “needs” such as food, instead of “wants” such as a new wallet. While this method of saving can be helpful, it is still difficult to save more money in Singapore.
With inflation and unexpected events, keeping a low daily expenditure is a difficult task. Of course, there are also ways to counter this. We can set a monthly budget to keep ourselves from overspending. You have to set the limits and then follow through with your budgeting plan.
Another key factor is to be consistent with your budgeting plan. Drawing up a monthly budget can be fun at the start, but it can get tiring and sometimes, people give up and revert to their old spending habits. To achieve financial freedom or to even retire early, saving and budgeting are a must! Without a large pool of savings, you won’t be able to retire.
How can you manage costs in Singapore? Are there ways to save more money? Here, we introduce the 50/30/20 Rule! This 50/30/20 rule was created by Elizabeth Warren and was popularised in her book, “All your worth: The ultimate lifetime money plan”. It is a simple budgeting method that allows you to not only save more money, but better plan your finances for a brighter future! It takes necessities, wants, and savings into consideration.
What is The 50/30/20 Rule?
It is a budgeting method that Senator Elizabeth Warren popularized. The Rule states that you should spend 50% of your income on necessities, 30% on wants, and 20% on savings.
The idea behind this rule is that spending less on unnecessary items will have more money to save.
What Are Your Needs?
Your needs are the basic things you need to live, such as food, shelter, and clothing. In Singapore, some of the everyday necessities include:
These expenses can pile up fast, so you must be mindful of spending in these areas. The 50/30/20 rule can help ensure you are not spending more than 50% of your income on necessities. For example, if you spend a lot of money on food, you can try cooking at home more often or eating out less.
What Are Your Wants?
Your wants are what you want but don’t necessarily need. In Singapore, some typical desires include:
- Leisure activities
- Dining out (restaurants)
- Travelling, vacations
These expenses can also pile up quickly, so your spending habits must be aware. You can adjust your income by working overtime or getting a higher-paying job, and the 50/30/20 rule will ensure that you are not spending more than 30% of your income on wants.
What Are Your Savings?
Savings are the amount you put aside for future purposes, and you should also use them for long-term goals, such as retirement or buying a house. Therefore, you will need to calculate your savings. Remember, you should only spend 20% of your income on savings.
By following the 50/30/20 Rule, you can ensure that you are spending your money in the most efficient way possible. You can save more money and meet your financial goals more quickly.
How to Use The 50/30/20 Rule to Save More Money?
There are various ways that you can use the 50/30/20 Rule to save more money. These include:
1. Determine Your Net Income
Net income is the monthly amount you bring after taxes and other deductions. Once you have identified your net income, you can start allocating a percentage of this income to different expenses.
2. Determine Your Essential Purchases
Essential purchases include housing, food, transportation, and healthcare. Non-essential purchases have items such as entertainment, travel, and clothing. By determining which assets are essential and which are not, you can allocate a percentage of your income accordingly.
3. Identify Your Financial Goals
It will help you determine how much money you need to save each month. Some of the factors you will need to consider include; your retirement age, your desired lifestyle in retirement, and your current savings. Once you have determined your financial goals, you can start allocating a percentage of your income to savings.
4. Initiate Adjustments Over Time
As your income changes, you will need to adjust the percentage of your income allocated to each expense. You may also need to adjust your financial goals as your circumstances change. By making these adjustments, you will be able to ensure that you are always on track to reach your financial goals.
How Do You Build Your Savings in Singapore?
There are various ways to save money in Singapore, but the 50/30/20 rule is a great place to start. The rule will help you allocate your income in a way that allows you to save more money. Some of the steps include:
Identify Your Necessities
These are things that you cannot live without, such as food, shelter, and transportation. In Singapore, housing is one of the most significant expenses. According to The Straits Times, housing costs comprise about 30% of most Singaporeans’ expenditure.
So, if you want to apply the 50/30/20 rule, you need to ensure that your housing costs do not exceed 50% of your income.
Identify Your Wants
Wants are commodities you would like to have but are not essential for survival. For example, eating out, going on vacation, and buying new clothes are all considered wants. In Singapore, it is easy to overspend on wants because there are many things to do and buy.
However, if you want to save money, it is crucial to stick to your 30% budget.
Allocate 20% of Your Income Towards Savings
It may seem hectic, but remember that the goal is to save as much money as possible. Some ways to save money in Singapore include using a savings account or investing in a retirement fund.
The 50/30/20 Rule is a great way to save money in Singapore. Therefore, by allocating your income in such a way, you will be able to save more money and reach your financial goals.
5 Easy Tips to Save Money in Singapore
Saving money in Singapore can be a challenge, especially with the high cost of living. However, it is possible to save money if you are mindful of your spending and make an effort to live within your means.
The 50/30/20 rule is an appropriate way to start saving money, as it forces you to be mindful of your spending and allocate a certain percentage of your income towards savings. Therefore, five easy tips that you can follow when learning how to save money in Singapore include:
Tip 1: Make a Budget and Stick to It
The first step to saving money is to create a budget and stick to it.
Determine how much you need to spend on necessities such as food, housing, and transportation. Then, allocate a certain percentage of your income towards wants, such as shopping, dining out, and entertainment. You should also make sure to save some money each month.
Tip 2: Track Your Spending
It is crucial to track your spending so that you are aware of where your money is going.
There are various ways to track your spending, such as using a budgeting app or keeping a journal. By following up on your spending, you will be able to identify areas where you can cut back on expenses.
Tip 3: Automate Your Savings
One of the best ways to save money is to have a portion of your income automatically transferred into a savings account each month. Therefore, you will be less likely to spend money on unnecessary items.
You can automate your savings by ensuring a direct deposit from your paycheck or a recurring transfer from your checking account to your savings account. For example, if you earn S$3,000 per month, you could automatically transfer $600 (20%) into savings each month.
Tip 4: Cut Back On Unnecessary Expenses
There are various ways to cut back on unnecessary expenses, such as eating out less often, cutting back on shopping, and downsizing your housing. If you can reduce your costs, you can save more money each month.
Tip 5: Invest In Yourself
Investing in yourself is one of the fantastic ways to save money in the long run. You will not see the effects immediately, but investing in yourself will be worth it!
By funding your education and career, you will be able to earn more money and have more opportunities for advancement. Additionally, investing in your health will help you avoid costly medical bills in the future.
What Are the Factors to Consider Before Using the 50/30/20 Rule?
It would be best for you to consider a few factors before using the 50/30/20 Rule.
- Your income volume; If you have a low income, you may need to spend a more significant percentage of your income on necessities.
- Your debts; If you have high-interest debt, such as credit card debt, you will want to focus on paying it off as quickly as possible.
- Your lifestyle; If you have a very active lifestyle, you may need to spend more on wants than someone with a more sedentary lifestyle.
What Are the Advantages of the 50/30/20 Rule?
Of course, the 50/30/20 rule has helped many people improve their finances. It has been proven effective for some. Some of the benefits of the 50/30/20 Rule include;
1. It Enhances Minimal Tracking
It doesn’t require you to keep an eye on every penny you spend. You only need to keep track of your three main expenses: necessities, wants, and savings. Therefore, it makes budgeting a lot easier and less time-consuming.
2. It is Flexible
The 50/30/20 Rule is flexible, and you can customize it to your individual needs and circumstances. For example, if you have a high income, you may want to increase the percentage of your income that you save.
Alternatively, if you have a low income, you may want to decrease the percentage of your income you spend on wants.
3. It Helps With Saving Money
The 50/30/20 Rule can help you save money in various ways.
For example, if you allocate a more significant percentage of your income to savings, you will be more likely to reach your financial goals. Additionally, if you spend less on wants and unnecessary items, you will have more money to save.
4. It Reduces Financial Stress
Nothing can be worse than financial stress. It can help you reduce financial stress in various ways.
For example, allocating a more significant percentage of your income to savings will make you less likely to experience financial difficulties.
Sticking to the 50/30/20 Rule
The 50/30/20 Rule is satisfactory for saving money and reducing financial stress. However, there are certain factors you need to consider before using the 50/30/20 Rule. They include your income volume, debts, and lifestyle.
Additionally, the 50/30/20 Rule is flexible, and you can customize it to your individual needs and circumstances. Therefore, if you are looking for an appropriate way to save money, the 50/30/20 rule is worth considering.
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