Who else cringes when they hear about the word Budgeting? With which money? How much am I earning? Do you know how much I spend on transportation monthly? Yeah yeah…
We all have many questions, however, money well managed will help us the youth live better – irrespective of the amount earned. It’s a new year and more than ever, the need to save and budget is very important.
What does the word budget in the first-place mean?
Budget simply means “a plan or an estimate of the amount of money needed for cost of living or to be used for a specific purpose.” Now that we have clarified the meaning, we delve into the 50-30-20 budget rule. This rule, made popular by a US law professor and current serving senator in the United State by the name U.S. Senator, Elizabeth Warren.
In her 2006 published book “All Your Worth: The Ultimate Lifetime Money Plan,“ she explained the concept of the rule as follows:
50% to needs
30% to wants
20% to savings
So Alice (Not real name), a 28 year old lady, who works at a consulting firm in Lagos earns N200,000 after tax needs to stick with a simple budget as she plans to save for her masters;
50%- Alice’s Needs . These are things she cannot do without. From the home upkeep she gives her parents for feeding, transportation, loans, fuel for the house generator, data and airtime bills. These are the must do’s she must do monthly. Now to maintain this fee, Alice has decided to bring food from home to save her from the N1,500 she spends on lunch. As that is where a large chunk of her money goes and if she is going to save for this she has to be disciplined. Using her N200,000 income after tax, Alice needs to budget N50,000 for her needs.
30% Alice’s wants
Alice needs to look good, buy new clothes, buy aso-ebi with accessories, visit the cinema, after all one doesn’t know where she can meet that “bobo”.
However, she has only 30% of her salary to do this. Wants are “nice to have”. A little indulgence doesn’t hurt as work life balance is needed to survive in Lagos. However, to stick to this 30% rule, substitutes are important.
Instead of visiting the cinema, Alice using her FirstBank App, subscribe to buy data and watch movies on YouTube. Also, instead of buying Aso-ebi that are above her budget, she can wear something smart and beautiful, get 5k clean notes and spray the couple.
Finally, 20% Alice’s savings ensures she saves 20% immediately when she collects her salary . That is N40,000. Alice, using the FirstBank Savings Account , puts an order to have the money deducted from her account after her monthly salary has been paid.
In conclusion, following the above steps like Alice, you will realise that budgeting does not have to be difficult. You just have to be disciplined. The 50-30-20 budget is a great asset as the world gradually embraces normalcy post-Covid-19. It will also help you achieve your set goals this year 2021 and beyond. Please note that it is the money after tax is deducted.
Wondering if as a businessman, the 50-30-20 rule can work for you? Yes, simply deduct your expenses from your monthly income. Our customer care reps can help you, simply visit our website to find out more or call 07080625000