Try the 50/30/20 Method of Saving Money
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Try the 50/30/20 Method of Saving Money

Posted on Tuesday, February 5th, 2019 at 7:00 am
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Having trouble sticking to a budget? There is a new method that could help you. It is called the 50/30/20 plan.

The plan was created by Help Me Hank, the consumer investigator for Local 4 News in Detroit, Michigan.

The concept of the of the 50/30/20 plan involves a simple breakdown. 50 percent of your income goes towards basic expenses. This can include important things like mortgage or rent, utilities, and groceries. 

30 percent of the plan goes towards discretionary spending. That phrase refers to money spent by consumers on non-essential purchases such as vacations or luxury items. Discretionary income is the amount of money remaining after a person pays for personal necessities and taxes.

Discretionary spending includes the fun things in your life. This includes travel, vacations and hobbies. It also includes dining out at restaurants, bringing home take-out, or having food delivered.

The 20 percent part of the plan goes towards savings and paying off debt. There are two ways to use this part of your budget. One is to spend the 20 percent on a credit card debt, a student loan debt, or whatever other debts you have. It can be used to pay a medical bill that your health insurance refused to cover.

The other way is to put that 20 percent into your savings account. If you think you will be too tempted to spend that money on discretionary spending, there is a way to prevent it. Create an automatic transfer of 20 percent of your paycheck directly into your savings account.

Ideas like the 50/30/20 plan are especially useful for younger people who have plenty of time to save up money for their retirement.

People of any age can benefit from having an emergency fund. Most financial experts suggests that your emergency fund should be equal to at least six months of expenses. 

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Good Tip: Saving money is important – especially if you have a lot of expenses like bills to pay, loans to pay off, and all the other things that drain your bank account. Figuring out a way to save money can feel tedious to some, and like a punishment to others. U.S. News suggests that you try one of these money saving challenges. The “No Eating Out for a Month” Challenge This one is self-explanatory. The goal is to avoid eating out for an entire month. This might be super easy for people who enjoy making meals at home. People who really enjoy dining out, or ordering food to be sent to their home, may struggle with this one. It’s worth a try because spending money on take-out is more expensive than buying groceries. The Pantry Challenge This one is a variation of the “No Eating Out for a Month” challenge. The goal is to use up all of your groceries before you buy more. It forces you to try and remember why you bought a food or beverage that you don’t know what to do with, and gives you the opportunity to find a way to use it. The one exemption to this challenge is the foods that have expired. Don’t eat them! Throw them in the trash. The “No Spend” Challenge Make a goal to avoid spending money during an entire weekend. The only exemption in this challenge is that you are allowed to pay bills. This challenge is interesting because it requires creativity. You must be creative and find workarounds for problems that you would typically solve by spending money. You may have a different outlook on spending after finishing this challenge.