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How to Use the 50/20/30 Rule to Prepare for Retirement

By February 16, 2017No Comments

Budgeting, saving and preparing for retirement can be a hard thing to do, especially if you’re young and retirement seems like a universe away. However, remember that a little smart spending now will give you financial freedom in the future, and follow the old adage, “If not now, then when?”.

The truth is that budgeting is not as hard as it seems. A very simple way of doing it is by following the 50/20/30 rule. Here’s how it works: 50 percent of your earnings goes to living essentials, 20 percent goes to financial stability causes and 30 percent goes to lifestyle choices.

The first 50 percent of your earnings should be spent on things you can’t do without. This includes rent, utility bills, essential groceries, transportation, healthcare and other necessary expenses.

The next 20 percent should go towards your financial stability. This includes paying off any debts you have (such as student loans), building up an emergency fund and saving for retirement.

Finally, 30 percent of your income should go to lifestyle choices, things that you enjoy but aren’t necessary. This includes eating out, going to the movies, paying for a more expensive car and other luxury expenses.

Of course, every person will be different, and you can change the percentage points to fit your needs. But the 50/20/30 rule is a great way of finding the right balance between spending and saving.

Remember that the 50 and 30 percentage points — especially the 30 percentage point — should be treated as maximums, so that you’ll have more than enough money left over.

For more tips on preparing for retirement, just contact us.