Money saving tips: 50/30/20 rule may make a ‘big difference’ to your finances in 2022

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The popular 50/30/20 rule might help individuals in getting their finances on track for the New Year. Put simply, this rule is designed to help people manage their money in an effective way that should stand the test of time. The basic rule is to divide one’s monthly income, after taxes, into three main spending categories which represent percentages.

Firstly, Britons should aim to spend 50 percent of their income on their essential needs.

This could include living expenses, rent or mortgage payments, bills and food, for example.

Another 30 percent should go towards what a person wants on a fairly regular basis.

For example, this could be money put aside for eating out, going on shopping trips, or weekend breaks.

The final 20 percent, it is recommended, should go towards savings or debt.

People could pay off their debt beyond a minimum level, or choose to put their money aside for the future.

For some, a savings account could be the best choice, while others might opt for investments with the potential chance of a higher return.

Alternatively, individuals rapidly approaching retirement might choose to put their 20 percent into their pension fund. 

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Once a person understands how much money they have coming in monthly, such as their salary, they can get started with implementing the rule into their lives.

It may also help to look at bank statements to check one’s income over the last three months.

A bank statement can also help Britons understand what they are spending on their needs and wants – potentially cutting down in certain areas. 

Once spending in each area is identified, savers can work out the percentage through a simple calculation.

For example, they can divide the amount they are spending on needs per month by their monthly income.

Then, people should multiply that number by 100 to ascertain the percentage, and see how this compares to the 50/30/20 outline.

HSBC has looked into the 50/30/20 rule, examining what this could look like for Britons on a monthly basis.

For example, if a person’s monthly income after tax was £1,500, they might spend:

  • £750 on needs
  • £450 on wants
  • £300 on savings or debts

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HSBC explains: “Remember, everyone’s situation is different. If you find your spending doesn’t fit the 50-30-20 rule, that’s okay. 

“But if it’s realistic for you, it could give you a good goal to aim for.

“Small changes can make a big difference over time.

“Putting a bigger portion of your income into savings, or paying off debt, can help you feel in control and able to make more of your money.”

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