I promised myself in this year of 2020 a.k.a twene twene to bring it all out. My theme this year is TO BE INTENTIONAL and it feels like I am five months into the year already.
I was recently reading a very interesting book ‘Courageous Leadership’ by Bill Hybles and somewhere he talks about making of Big Hairy Audacious Goals, goals that are big, bold and almost scary. When I looked through my goals this year they were not any less of that. I will just share one that I resolved to improve my financial discipline. Now this is such a stretch, clearly shakes my comfort zone to the core but I am willing to give it a try.
With my financial plan to achieve my goal of improving my financial discipline, I decided to go with the famous 50/30/20 budget rule. I will share this in detail with you and perhaps you want to give it a try.
50/20/30 budget rule was popularized by Senator Elizabeth Warren in her book ‘ All Your Worth: The Ultimate Lifetime Money Plan.’ The rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must-have or must-do. The remaining half should be split up between 20% savings and debt repayment and 30% to everything else that you might want.
Needs are those bills that you absolutely must pay and are the things necessary for survival. These may include rent, fuel, groceries, healthcare, utilities name it. These are essentially your “must-haves.”
Half of your after-tax income should be all that you need to cover your needs and obligations. If you are spending more than that on your needs, you will have to either cut down on wants or try to downsize your lifestyle, perhaps to a smaller home or more modest car. You may even want to explore public transportation to work, or cooking at home more often than always buying food.
Wants are all the things you spend money on that are not absolutely essential. This includes dinner and movies out with friends, change of wardrobe, that new handbag, tickets to a music show, weekend get away, the latest electronic gadget. Anything in the “wants” bucket is optional if you boil it down. There is always a way around it. Instead of cinema, you can choose to do it from home, you can work out at home instead of going to the gym, cook instead of eating out, name it
Just incase take a decision to upgrade your gadget or the dstv subscription, change the car, it all falls under this category. Basically, wants are all those little extras you spend money on that make life more enjoyable and entertaining.
Finally, try to allocate 20% of your net income to savings and investments. This includes adding money to an emergency fund in a bank savings account, and investing in that land or stocks. You should have at least three months of emergency savings on hand for those unforeseen event occurs. (Please note that we are not preparing for the worst, but those times are inevitable)
Debt repayment can also be put in here.
Now when I looked at my income streams, I had to lift my head and get working smarter than I already am. I will surely give an update on my progress. Feel free to give this a try.