Learn How Your Finances Should All Add Up @ Reward Me

How your finances should all add up

When times are tight, keeping track of your spending can be the answer – especially if you follow one simple strategy.

Everyone from banks and building societies to the government has ideas about how you should manage your money. Although there’s no magic answer following this one rule can really help:

The 50/30/20 rule
Spend 50% of your income on essentials, 30% on optional items, and aim to put 20% away for emergencies.

Getting started

1.    Essentials - First, you’ll need to work out the family’s take-home pay and halve it. That’s your first 50. Then add up what you’re currently spending on essentials: mortgage, food, clothes, utility bills and so on. How does this compare to that first 50? Think about switching providers for gas and electricity to get a better deal. When times are tight, it’s natural to reach for the lowest prices, but it’s worth thinking about whether those products are really the best value. (Fairy will last you much longer than a cheaper washing up liquid, for example. Making it better value in the long-run.)

2.    Desirables – According to the plan, 30 should go on ‘desirables’. Of course, at times that can seem like a bit of a pipe dream. But if you are able to set it aside on months with special occasions like birthdays, then that’s great. And remember, the ‘desirable pot’ isn’t just for others. You deserve the odd treat and luxury just as much as they do.

3.    The other bit – Finally the bit that no-one likes … until they see the benefits – the 20% you’re putting away. Trying to clear any debts is obviously a priority here. Start with the most expensive. If you’re running a long-term credit card balance, talk to your bank immediately about converting it into a loan (you’ll save on interest). If you haven’t got debts to pay off, you should think about saving. Even if you can’t put away 20 percent each month, just setting aside what you can means you’ll soon build up for emergencies or those special occasions. 

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