Beginners Guide to the “50/30/20” System

There are several budgeting techniques and it makes the process of choosing which one works best for us a bit overwhelming. So, my goal is to explain the several existing methods, in order to make your decision slightly easier.

I also have a Beginners guide to the “cash envelope” system, if you want to learn a bit more about it.

The 50/30/20 categories

50%- corresponds to every need you have throughout the month. These needs might be rent/mortgage, utilities, groceries, car payments, etc.

30%- corresponds to your wants. For example clothes, memberships, subscriptions, dining out, etc.

20%- corresponds to your savings.

How to budget according to this system?

1.Figure out the exact amount you can work with

I always start with this step in all my budgeting posts but trust me, this is crucial in for you to succeed at it. You need to know the amount that is left after deducting your taxes, social security, etc.

2.Calculate the amount for each category 

Income (step1) * 0,5= Needs

Income (step1) * 0,3= Wants

Income (step1) * 0,2= Savings

These will be the exact amounts you’ll be able to spend on each category.

Tip: try to stay under budget in the needs and wants categories, that way, you will be able to add more to your savings. Enabling you to create future investments, savings account, an emergency fund or even pay off any debt quicker.

Feel free to adjust the percentages if you think that will benefit you. Overall, it’s a really good method to start a budgeting journey and increase your savings.

Thank you for reading it, and I’ll see you in my next post.

Beginners Guide to the “Cash Envelope” System

The “cash envelope” method is a great way to save money, to pay off debt and even to build your retirement account. It’s actually an easy way of achieving some of your goals, you get to save for that dream holiday, for the house of your dreams, for the huge wedding you’ve always dreamt of or even to plan the move for the country you’ve always wanted to live in.

So, here’s how this method works:

1.Figure out what you can work with.

Start with your tax and expenses free income. Know exactly the amount you’ll be able to take out of your bank to use it on the envelopes. Keep in mind, some things are paid with your debit card, just make sure to incorporate them on your budget.

If you need help making your budget, you can read this post that I wrote on How to budget your income.

2. The categories

This step may be different from mine. I’ll give a few examples with my categories, but you should adjust them to your life. Mine are: Groceries, needs, knowledge investment and fun money.

3. Choose the envelopes

Try to get envelopes with different colours, this will help you memorize which envelopes correspond to which categories and also because they’re cuter! I use paper envelopes but there are other envelope systems, for example, the Dave Ramsey’s.

4. Fill your envelopes

Now that you know your budget and you have the categories on your envelopes, you can start filling them with the specific amount that you designated for each.

Don’t forget to leave the money meant for the things you’ll pay with the debit card in the bank.

5. What’s next?

Well, now you go shopping and only spend what’s in the envelopes. Some people like to just have their envelops when they’re going shopping. To be quite honest, it’s something that bothers me, so when I go shopping I take the amount from the specific category and put it in my purse.

6. At the end of the month

Whatever is left on the envelopes and on my bank account that I didn’t use that month, I put it into savings. That was key to sky-rocket my savings account.

I really hope you try this method. Thank you for reading it. I will see you in my next post.