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Managing Your Money Using The 50-30-20 Rule - YouTube
Channel: Practical Wisdom - Interesting Ideas
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Managing Your Money Using the 50/30/20 Rule
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Are you ready to watch your money grow this
year?
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What if I told you there is a way you can
exponentially grow your money this year, would
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you be interested?
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Well if you are make sure you watch this entire
video, because we will be talking about an
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amazing rule, that will help you achieve your
financial goals this year.
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Today we are talking about the 50/30/20 budget
rule.
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I know you have probably heard or maybe come
across this rule before, and you might even
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know a thing or two about this rule.
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But, in today’s video, we will explain exactly
what this budget rule means, how to use the
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rule, and what not to do so that you can meet
your financial goals.
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The 50/30/20 rule happens to be one of the
best and most popular tools for people who
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don’t have time to track all their spending,
but want an easy way to manage their expenditure,
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save money and control their money.
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The rule works like this; it requires you
to divide your expenditure into three categories.
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• Your Needs
• Your Wants
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• And Savings or debt
But before we continue with the video, are
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you a subscriber?
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If not, please hit the subscribe button and
the bell icon to get notified whenever we
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post.
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Now let’s dive into the video.
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To help us illustrate this rule, I’d like
you to say hello to John.
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John’s an average guy who makes $4500 a
month after-tax.
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Using the 50-30-20 rule, John will need to
divide his money like this.
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50% of his money which is $2,250 will go into
his needs, 30% which is $1,350 will go into
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his wants and 20% which is $900 will go into
his savings, or paying off debt.
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Just like John you too will need to divide
your income into those categories.
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Simple right?
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But let’s look at it a little closer.
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Step One: Limit Your Needs
Needs are things you can’t live without.
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These include things such as housing, health,
transportation, utilities, food, paying off
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debt, and the bare minimum for clothing, shoes
and other living supplies.
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Only include items you can’t survive without
in this category.
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If you don’t have a budget this would be
the ideal time to create one.
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Carefully analyze what you spend your salary
on each month within this category.
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Warren and Tyagi, who are financial experts
say this category should not exceed 50% of
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your monthly income, if it does, then something
is wrong!
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If you do however spend more than 50% of your
paycheck on your needs, don’t panic.
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All you need to do is carefully evaluate what
you spend your money on each month.
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A good rule of thumb is to track your expenditure
so you can have a good picture of where your
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money goes.
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Once you know where your money is going, adjust
your needs by reducing unnecessary expenditures
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or find cheaper alternatives.
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Once your budget matches the 50% limit, you
can now proceed to the next step.
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Step Two: Define Wants
Now a whole 30% of your pay cheque going towards
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your wants may sound like a whole lot of money
right?
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You may be picturing a nice pair of shoes
or that new iphone that got released, the
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other day.
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As nice as all those things are, we are not
talking about buying your deepest desires.
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By Wants we mean expenses you can opt out
of spending on but your life would be harder
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without them.
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I’m not sure your life will be any harder
without that new phone, but you might find
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it hard to communicate without a mobile data
plan.
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This category should include things like,
your internet plan, data plans, home cable
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bills, mechanical not cosmetic repairs to
your car and so on.
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I bet you now get it!
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Sometimes it may be hard to distinguish between
needs and wants.
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But the rule of thumb when it comes to defining
a want is by asking yourself if you can live
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without it, and if you can then it’s most
likely a want.
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Now the final step;
Step 3: Save Up
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The final 20% of your pay cheque should go
towards your savings and paying off debt if
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you have any.
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This money can be used as an emergency fund,
a deposit for a home, for investing or savings
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for retirement.
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If you feel as though that 20% isn’t enough,
you can transfer more money from your wants
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list into this account.
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Now, let’s talk about the types of debt
that should be included in the 20% category.
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The only debt that should go into this category
is that which is above the minimum required
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payment.
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For example, additional credit card payments,
or extra payments on mortgage to clear your
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debts faster should go into this category.
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The minimum payments on debt should definitely
go towards the needs category.
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The reasoning behind this is that the minimum
required payments are compulsory and failure
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to pay them would cause adverse effects on
your credit status; something you just can’t
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live with.
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The 50-30-20 rule is great because, it helps
you track your expenditure easily, having
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just three categories creates a structure
that is easy to follow and helps one to focus
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and manage money better.
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It’s less detailed making it ideal for individuals
who have busy lifestyles and minimal time
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available in a day.
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The rule works really well for people within
the lower income brackets, between $100 - $6000
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It’s however not ideal for high income earners
because they would be forced to spend unnecessary
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money on needs.
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The 50-30-20 rule has helped many people get
their finances on track.
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So many financial experts swear by this rule.
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Many people who have been in horrible financial
ruts have made it through by following this
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guide accordingly.
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You too can be one of them if you apply it
today!
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Well, that’s it for today folks.
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We hope you enjoyed the video.
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If you’re still here then I bet you enjoyed
it!
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Don’t forget to give it a thumbs up and
to add it to your saved playlists so you can
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always review it when you need to.
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Thanks for watching!
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And as always I will see you in the next one.
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