Best savings tips: the 50/30/20 rule

Best savings tips: the 50/30/20 rule

Best savings tips: the 50/30/20 rule

Optimize your saving routine

Best savings tips: the 50/30/20 rule

Are you struggling to allocate resources to your savings account? Then this article might be just right for your needs. We are going to understand how to draft our savings routine according to the 50/30/20 routine.

You’ll find that the beauty of this rule lies in its simplicity. Overly sophisticated periodic savings systems could prove to be complicated and stressful. Put simply, the rule requires that one saves:

  • 50% to needs;
  • 30% to desires;
  • 20% to long-term savings.

A question may now arise spontaneously:

how is it possible to distinguish between needs and desires?

While necessities are easy to list, desires are much more subjective and personal. A vacation that you consider valuable and essential, to another person might seem frivolous and wasteful. The 50/30/20 rule encourages you to be explicit about your desires. This doesn’t mean catapulting yourself into spending sprees. Rather, it’s an invitation to give yourself permission – within a reasonable set of constraints – to spend some of your money on things that make your life enjoyable. You’ll often see similarities between your desires and your needs. Clothing, for example, is a necessity. The truth, however, is that most people could dress economically. A first step to having periodic savings is to distinguish ex ante needs from desires and give them parameters within which they can move (for example, 30% of monthly income).

The fundamental step to reduce costs, on the other hand, is to implement small routines, that is, permanent changes to our consumption habits. There are a thousand ways to make small family economies, some very trivial, such as emptying your pockets of loose change every night and putting it aside, others more structured, such as taking time to optimize all expenses related to one’s supplies. The secret is not so much to cut a specific item among the voluptuous costs, but in limiting the individual cost items.

To know more about optimized savings and investments read One Million for my Daughter.



Pietro Di Lorenzo