To Calculate your spending and saving can make us dizzy. How much of your paycheck should go towards housing? What about saving? Or entertainment and vacations? Many people make a mistake in distributing their money. Some allocate to much money on tertiary need, some others forget to save.
Cited from CNBC Invest in You, the formula “50-30-20 formula” can help us solve the problem. While the specific solution varies from person to person, the formula can give basic guidance. Here’s how it works.
50% of your income goes to needs
Half of your income should go to your daily necessities. That includes your rent, food, the car you need to drive to your work, your wardrobe, and others. This category also includes insurance and childcare.
Also read: Let’s Start Your Stock Investments with Minimal Capital
30% of your income goes to the enjoyment
One-third of your money can be used for enjoyment. You can use the money to travel, watch a movie, going out to eat, and many more. These activities are important to keep your productivity. You can also go back to work as someone fresh. On top of all, you can keep your mental health only if you take care of your happiness.
However, you still need to be wise in spending the money. As suggested by research, how someone spends money is more essential than the overall income or the total amount spent.
Many experts recommend people to spend on experiences, like trips or classes than on things. Thus, spending money for enjoyment is important.
20% of your income goes to savings
The remaining 20% should go to your future self. This includes retirement funds and saving for major purchases, such as a home or car.
Saving can be difficult for some people. Yet, the report says that people can start from as low as 1%. They can gradually increase the amount over time. Sometimes, the investment can be a good idea. Unlike saving, the investment allows your money to work for you. If you invest, you will also help the life of your employer.
this formula will help you calculate your spending. Now, you can try!
Also read: How to Invest While Paying Student Loans
