50/15/5 Rule: The best way to keep your budget plan may be to not spend too much money on it.
The “50/15/5 Rule” will be a good guideline for achieving your savings goals while managing your monthly budget.
This rule is best suited for those who can afford to live and have savings for retirement.
50/15/5 How to use the rules
The “50/15/5 Monthly Budget Rule” advocated by Fidelity helps maintain financial stability in the short term while maintaining current life after retirement. For more information on this rule:
- Allocate less than 50% of the take-home income to necessary expenses such as housing, transportation, and food expenses.
- Allocate 15% of pre-tax income to fund such as defined contribution pension plans (including if the employer has the same amount of contribution).
- 5% will be used for unexpected monthly spending and emergency funding.
As you can see, adding these up is still only 70% of your income. The remaining 30% can be used for free shopping such as dining, entertainment, clothing and travel at the restaurant.
The advantage of this approach is that you don’t have to fine-tune the money you can spend at your discretion.
The reality is that many people get tired of it and abandon budget control ( recent surveys show that 20% of people do not manage the budget at all).
Naturally, this rule is suitable for people who are already living a comfortable life to some extent. If you want to live a good life after retirement, you will need to increase your retirement savings even more (if you have a lot of debt, the 50/20/30 rule or the 80/20 rule may be more appropriate).
You can see how the 50/15/5 rule works with this calculator.
Also, this rule can be adjusted. Except for the 15% used for retirement savings, the other parts can be used as guidelines. For many, it’s difficult to keep costs down to 50%, and the 65/15/5 rule may be more realistic.
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