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O 50-30-20 method is suitable for people who want to organize their financial lives. After all, organizing or maintaining them with peace of mind is a challenge for many Brazilians. In this sense, there are various techniques and methods that can help, and this is one of them. Check it out below. 

What is the 50-30-20 method?

O 50-30-20 method is one of the most famous in the world of financial organization. This procedure, popularized by US Senator Elizabeth Warren, is one of humanity's greatest financial management classics. 

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One of the method's biggest differentials is undoubtedly the simplicity it offers people. This is because, to follow it, you only need to use three basic rules to distribute the budget. 

Normally, people don't have the patience or time to organize themselves financially, but that's not a problem for those who follow this method. The solution is basic: you need to allocate 50% of your money to your needs, 30% to your desires and 20% to your financial goals. 

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What is the 50-30-20 rule? 

The main rule of 50-30-20 is the method of income distribution. In other words, in general terms, it suggests the ideal way for people to use their money. In this case, consider the three main categories of spending:

  • Needs: In this method, people must allocate 50% of their savings to necessities. In other words, the amounts are earmarked for essential purchases, such as rent, food, transportation, among others; 
  • Wants: This category includes all spending on non-essential consumer goods. In addition, the maximum amount of income that should be allocated to these expenses is 30% of the budget; 
  • Financial Goals: Last but not least, people need to worry about an essential factor in their finances: financial goals. The 20% portion represents goals and savings, ideal for building up a financial reserve or diversifying an investment portfolio. 

In short, the whole method is extremely simple to understand and apply, you just have to separate your spending into these three categories. Remember: obey all the percentages set out above and succeed in your finances.

A very important detail to consider in this method is your net salary to apply to these percentages. In other words, the amount you receive monthly in your bank account, excluding all deductions. However, if you don't have a fixed salary, consider your monthly average and deduct taxes. 

What are the essential expenses

As mentioned above, around 50% of the total budget is allocated to essential expenses. In this sense, the first step in applying the method to your financial life is to know what these amounts are. 

Most people who have no control over their spending start to do the math and realize that their expenses exceed the percentage of the method. And it's very common for them to reach high proportions, maintaining a 70-30 method, without setting aside any reserves for goals. 

There are some expenses that are considered essential in anyone's life. Knowing them is the first step towards applying this method to your finances. Check them out below:

  • Rent;
  • Food;
  • Health;
  • Water and electricity;
  • Cooking gas;
  • Transportation;
  • among others. 

It's important to note that this category can be more or less comprehensive, it all depends on your monthly needs. If you work from home, for example, one of the main properties is the internet. 

What are the superfluous expenses 

In the 50-30-20 method, 30% of your monthly income goes on superfluous spending. These items give consumers immediate satisfaction, but can easily drive them out of control. 

In this sense, it's important to take special care with these expenses, as it's in this category that problems can arise in your financial life. Debt due to the incompatibility of earnings is one of the main examples. 

To avoid this problem, applying the 50-30-20 method is an excellent recommendation. In fact, it's recommended to live one step lower, as this guarantees great savings in the long term. Here are some examples of superfluous spending: 

  • Travel;
  • Streaming service;
  • Leisure;
  • Non-essential purchases. 

What are your financial goals?

The category of financial goals is a novelty for a large part of the followers of this form of financial organization. After all, Brazilians are not in the habit of building up reserves or saving part of the money they earn each month. 

However, in addition to amounts intended to build up savings, this includes installments on real estate or car loans. It's also a great option for any loans or overdue bills. 

In this category, 20% of your planning is earmarked for financial goals, especially paying off debts, if there are any. Once your accounts are in order, it's time to build up your emergency reserve. It's important that the amount is six months' monthly earnings. 

In other words, if you earn R $1,000.00 a month, your emergency reserve should be R $6,000.00. In practice, this reserve acts as a "financial cushion", essential for emergencies in your life. 

The method is worth following

Now that you know the method in depth, you probably know how important it is in your financial life. In this sense, it's well worth organizing your finances with the help of 50-30-20. This is one of the best ways to change your life and the way you consume on the market. 

It's important not to be afraid of following this method, but to start calmly and with discipline. The first step is to turn this percentage into real money. If you earn R $3,000.00 a month, R $1,500.00 should go towards essential expenses, R $900.00 towards superfluous expenses and R $600.00 towards your financial goal.

By understanding the amounts, consumers can set limits for each type of expenditure. Through discipline, calm and organization, it is possible to follow the 50-30-20 method with ease. 

This procedure is recommended for those who want to get out of debt, organize their finances or change their consumption profile. It is also very important for the market. 

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