The 50-30-20 Rule: A Formula for Saving Money and Managing Expenses

Some experts recommend a simple savings formula that divides your income into three different sized bands.

If you keep a close eye on your finances, you can save yourself a lot of trouble. Some connoisseurs swear by a simple formula that you can use to throttle your monthly expenses if you apply it consistently enough. We are talking about the so-called 50-30-20 rule, which can be applied to any income.

Divide net income – according to the 50-30-20 rule

Want to try the 50-30-20 rule? How it works: Divide your monthly net income into three different sized ranges according to the three numbers (50 percent, 30 percent and 20 percent). The largest area is fixed costs at 50 percent, and leisure should not make up more than 30 percent. Eventually, you should be left with 20 percent, and that’s the money you should be saving every month.

50 percent of the monthly net income for the fixed costs

Now all you have to do is think about which of your expenses are part of the monthly fixed costs, for example the costs for groceries, energy or rent. You cover all these expenses with the mentioned 50 percent. To make this easier for you, we recommend having these transferred from your account by standing order at the beginning of the month. Then you have covered the cost of living and can continue to gamble with the remaining money.

According to the formula, 30 percent is spent on leisure time

With the remaining 30 percent of your net income, you can do anything that falls in your free time. This area includes, for example, vacation costs, cinema visits or if you go on a trip with your family. It is of course up to you how you ultimately split the costs incurred within the month. You should only move within the framework of the rule mentioned, i.e. not exceed 30 percent.

Reserve 20 percent of the money for savings

Now it’s time Save, for which the 20 percent mentioned are reserved according to the rule. You deduct this amount from your income at the beginning of the month and ideally transfer it to a separate custody account by standing order. Then don’t even be tempted to touch that amount. This can save you a handsome sum in a year.

Ten tax tricks: How to save money on your tax return

In July: These tips will save you money (symbol photo).

Did you know? Incidentally, the special expenses also include certain types of insurance, such as liability or Riester pensions.

Caring for relatives can also be tax deductible.

Fire department. Volunteering saves taxes.

Tiler at work. Be sure to state tradesman costs in your tax return – this will save you money.

Optician with glasses. Medical costs such as glasses, medication and treatment costs are taken into account by the tax office if they exceed the reasonable limit.

Another tip: Keep a household book of all your costs. Then you know that you haven’t forgotten anything when it comes to expenses and where you should start making cuts first if the calculation doesn’t quite add up. The Federal Association of German Banks also has a few tips on how to save something in everyday life with simple means.

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