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Why successful people use the 50/20/30 rule

 When asked about her success, Sophia Amoruso loves to say, “Money looks better in the bank than on your feet.” In her book the founder of NastyGal and Girlboss Media, states it is essential to know how to manage your money. The 50/20/20 rule is a great way to set up a budget but also to understand where you are over or underpaying relative to your income. 

1# 50 out of the 50/20/30 rule

50 percent of your income should go to your fixed expenses. The things you need to live your life. The breakdown of this 50% should roughly be as follows:
  • 30% housing (rent or mortgage)
  • 10% groceries, toiletries, etc
  • 5% electricity, water, gas bills
  • 5% to transportation/ parking

If these costs combined go over 50% of your income, you are living above your paycheck. This will make it much harder to invest in yourself by saving and will set you up for a paycheck-to-paycheck life.

 2# 20 out of the 50/20/30 rule

20 percent of your income should go to your financial goals. You should invest in yourself by setting up some savings and investments. These 20% should be divided in a way that contributes to your personal money goals. For instance mine are divided as 5% towards emergency fund, 5% towards investments, 5% towards savings and 5% towards down-payment savings for a house.

3# 30 out of the 50/20/30 rule

30 percent of your income you can spend on whatever you want, since you have already covered your most important expenses (50%) and your financial goals (20%). However how you want to spend the 30% is up to you, but be mindful that you are efficient and don't let your money go to waste. If you feel 30% is too much, you can always choose to put a bigger percentage towards your financial goals.

So the goal is...

Getting more value out of your finances. So it’s time to start investing in yourself instead of your shoe collection. Did you know about the 50/20/30 rule, or are you just finding out? Do you feel it will help you with budgeting and the organization of your financial life? Let us know in the comments.

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So both in our 30's, with exciting careers including fast track to CEO positions, we met at RSM Business School during our MBA in The Netherlands. 

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