The secret to using money effectively: The 80/20 rule

You are not the only one who finds it difficult to budget every month. More than half of Americans do not know how much money they spend each month, according to the results of a 2021 survey conducted with 1,938 people. The Penny Hoarder announced.

Also according to a recent report by LendingClub, budgeting can help you identify unnecessary expenses and keep your money savings on track, especially if you’re a money person. wage.

The important part of this rule is that no matter what, at least 20% of your income should go toward long-term financial goals. Photo: Getty Images.

However, tracking your regular spending isn’t always easy if you’re a busy person or aren’t familiar with apps or spreadsheets. That’s why the 80/20 rule might work for you. This is a simpler and easier to follow budgeting method, like the 50/30/20 rule.

Specifically, 20% of your salary will automatically go into an investment, savings or loan account, or a reserve fund to cover your expenses for 3-6 months. So you’ve paid for yourself first, by setting aside money for long-term financial goals.

Ideally, most of that money should be invested in retirement. Financial planners generally recommend setting aside at least 10-15% of your salary in a retirement account.

The remaining 80% is used to fulfill your needs and desires, such as food, rent and entertainment. However, how you spend that money is up to you.

The important part of this rule is that no matter what, at least 20% of your income should go toward long-term financial goals.

For best results, set up an automatic transfer to a savings or investment account on the day you get paid. Most banks allow you to set up automatic transfers on their mobile apps or websites. That way, you’ll never forget to transfer that money or be tempted to spend it.