We ve all said to ourselves that we d stick to our budget by installing a budget management application, only to abandon the idea a week later. That s why it s important to simplify your budget organization, so as not to lose motivation. To do this, let s discover the 50/30/20 method. The rule comes from the book "All Your Worth: The Ultimate Lifetime Money Plan", written in 2005 by Elizabeth Warren and her daughter Amelia Warren Tyagi. It aims to prove that you don t have to stick to a complicated budget to control your finances.

‍

This budgeting method is very simple. It involves looking at your net income for the month and dividing it into 3 categories. The first category will consist of 50% of your income and will be devoted to compulsory expenses (your rent, electricity and gas bills, transport costs, insurance, monthly loan payments, basic food...). For example, if you have a net income of €2,000 a month, then €1,000 will go to compulsory expenses. If you currently exceed this 50%, it s advisable to make a few changes to reduce your expenses. You could, for example, change your suppliers or look for a less expensive apartment.

‍

The second category will be 30% of your income and will be devoted to your desires. These are the little things that aren t essential but that you choose to do freely. This could be: eating out, shopping, vacations, sports club memberships, entertainment (Netflix, Amazon Prime), etc.

The goal of this budgeting is not to stop enjoying life, but to be more responsible. If you notice that this category is higher than 30%, then I advise you to think about how to reduce these expenses.

‍

The third and final category allows you to set aside 20% of your income for savings. It s by saving 20% of your income that you build a smart, long-term savings plan. You ll be able to reach your savings goals more quickly. We advise you to always put your savings aside as soon as you receive your salary (in your passbook or a savings account) so you won t be tempted to spend it otherwise.

‍

Now that you know the principle, how do you apply it in your daily life?

‍

Step one: Calculate your net monthly income (link to article).

If you re employed, you can find this income directly on your payslip. Be sure to check that you haven t had any insurance or mutual insurance deducted, which you ll need to add back in.

If you re self-employed, your net income is what you earn in a month, minus your professional charges and the amount set aside for your taxes.

‍

Step 2: Categorize your expenses from last month

Take your bank statement and divide your expenses into the 3 categories: needs, wants, savings.

This will allow you to see how you break down your spending without a budget plan, and what you ll need to change.

‍

Step 3: Analyze and modify your spending habits

Taking your result from the previous step, look at how you need to modify to reach the balance of the 50/30/20 method.

‍