How to Use the 80-20 Rule for Saving Money

Following money-saving rules isn’t easy. You have to face up to your finances as they are and without embellishments. You have to learn how to budget and save money. The toughest bit is that you have to bury certain desires and defer others to another time.

Whatever your bank balance is at the moment, it takes guts to take charge of your money situation and we know you can do it. Let’s get to work.

How many of us have a saving and budgeting plan?

Check this out: we may not follow the best budget rules but we ALL have a budget. Yup, it’s true. We all HAVE a budget; we might not know what it is, but we have one. Money comes in and money goes out – that cash flow IS our budget. You are already spending your money and you are probably spending it on the things you need AND some of the things you want.

The question is, are you happy with the amount you are saving? Not really? We think you might be happier if you decide on a specific amount to save BEFORE spending. Let’s try the 80-20 savings rule.

A great budgeting rule is the 80-20 rule of finance

Divide your income like this:

• 80% for living expenses (rent, debt, food, clothing, gasoline)
• 20% for savings (you can break down your savings by categories)
  • 10% for long-term goals (retirement/work optional lifestyle)
  • 5% for emergencies (you know about this, right?)
  • 5% for specific short-term goals (vacations, major purchases)

With this Budget Builder, you can see how your monthly spending compares to recommended estimates in your area.

Remember, you are the boss. Some of us have to spend 90% on living expenses. That’s okay, you’ll just need to adjust your savings amount. The bottom line here is that YOU are in control. Give every dollar you earn a “job.”

For more about the 80-20 rule of money management and making your money work for you, check out this video.