00:00Welcome back to Whiteboard Finance. My name is Marco and I'm here to help you master your money
00:05and build your wealth. Today we're talking about how to manage your money using the 50-30-20 rule
00:11but before we get into the video I just want to show you very quickly a screenshot here of a
00:16poll
00:16that I ran about two weeks ago. So we have a lot of new subscribers to this channel which is
00:21great
00:21and about 834 of you voted on this poll which is awesome. So basically that poll is just asking
00:28what kind of videos you want to see from this channel and 30% of you said personal finance
00:33related. 22% said stock market. 18% said cars. 17% want to learn more about real estate investing
00:41and 13% said how to make money online. But the encouraging thing is is that most of these
00:47comments from this poll were people saying they wanted to learn about all these things. So thank
00:52you so much to those who did vote and contribute and that's why I want to talk about personal finance
00:57in this video today. So you may be wondering what the 50-30-20 rule is. So as always let's
01:03write
01:03this down so we can get a visual representation of what this means. So pretend that we have a pie
01:09right here and half of this pie which is the 50% actually stands for your needs. So again this
01:17is
01:17all about budgeting and understanding where your money is going and I and an ideal personal budget
01:22portfolio. So 50% are needs. Let's call this 30% are going to wants and then 20% is
01:33going to savings
01:34or paying off debt. So now that you have a visual representation let's break down each one of these
01:40numbers and give you examples of each so that you can be gauging your own personal finance based on
01:46these metrics. Keep in mind we're working with after-tax dollars which is called net income.
01:52So you may have a gross pay of let's say 50 grand a year but after taxes you're only dealing
01:57with
01:57another specific number. We're using that after-tax dollar number. So in terms of the 50% needs what are
02:06some things that can be included in this? So let's think about regular living expenses. So we have
02:12groceries, we have housing, whether you have a mortgage or rent, you have insurance for health,
02:19heaven forbid something happened to you, I would consider health insurance definitely a need.
02:24You can have utilities, so electricity, things like that, etc, etc. So the way I define a need
02:32is that it's basically something that would greatly inconvenience you or something that you
02:38literally cannot live without. So food, shelter, things like that. So when you budget 50% towards
02:44your needs, remember that those are what you're looking at. So the next logical area to go into
02:51is going to be what is really considered a want. And I think this is where most Americans
02:58run into the difference between wants and needs, okay? So a want is something that causes a minor
03:06inconvenience in your life, okay? It's not necessarily a need to where, hey, if I don't eat or if I
03:11don't
03:11have shelter, I may die, right? A want is something where it's like, hey, you know, am I willing to
03:17give
03:18a minor inconvenience like dropping Netflix or not having Hulu or not buying a brand new grill to grill
03:24a steak on? You know, those are needs, okay? So some of the things that would fall under this category
03:29would be things like shopping. You absolutely need to shop for brand new clothes right this second.
03:35Are you going to drop dead if you don't get a new pair of shoes? Maybe my wife will, but
03:39I know that
03:40I can survive. You know, dining out. I think this is a big one for Americans. A lot of people,
03:46for
03:46whatever reason, their lifestyles are so busy that, you know, it's easier just to jump in the car and go
03:51grab something to eat rather than preparing the food yourself. Hobbies. So I think that everyone should
03:58definitely have a hobby. That's one of the greatest joys of life, whether it's gardening, you know,
04:02you fly drones, you're a video editor, whatever you want to do, whatever keeps you happy as a hobby,
04:07this definitely falls under a want because it's not necessary to live. So again, guys, a want is
04:13something that you don't necessarily need, but it improves the quality of your life greatly.
04:18So let's go to the last 20%. And I know a lot of this sounds basic, but until you actually
04:23write
04:23this down and understand where all your money is going to, it's like your wants can easily creep into
04:29that needs category to where they're both overflowing and you're in debt every month.
04:34So speaking of debt, let's talk about savings. Okay. So savings and paying off debt. This is where
04:42the last 20% of your income should go to. And again, these are all net numbers. So if you
04:48have,
04:49let's call, let's say for example, an emergency fund. Okay. This I would consider savings. What I like to do
04:56for emergency funds, this is six to 12 months of living expenses. So if you know that your needs
05:04category and a little bit of wants comes out to be, let's say $2,000 a month for your entire
05:09family,
05:10you know that you need to save about 12 to $24,000 in your emergency fund. I know that sounds
05:16like a lot
05:17of money, but you know, one or two layoffs in a family of, you know, one or two income earners
05:21that
05:21can really save your butt right there. You guys, um, obviously, you know, paying off debts. So if
05:27you have credit cards, you know, student loans, things like that, these are debts that you should
05:33just smash using that 20%. And I will make another video about how to actually pay off debt using the
05:39debt avalanche and the debt snowball method. Okay. And then obviously if you want to save for retirement,
05:47in my opinion, this is one of the things that most Americans will be suffering from, uh, 20,
05:5230 years from now, because a lot of them are just not focusing on retirement savings. So I know a
05:58lot
05:58of this stuff sounds like common sense, you guys, but until you actually create a monthly budget,
06:03knowing what your monthly net income is, breaking it down by 50, 30, and 20%, you would be surprised
06:09that we're different dollars go for different categories. So unless, um, unless it's not a want or a need,
06:16I would definitely put it under this 20% savings in debt category. So that's pretty much all I have
06:22for you guys today. I know that this may not be some earth shattering information. Uh, but again,
06:27until you actually write it down and understand where every single one of your after tax dollars
06:31is going, you might be surprised. So I know this video is a little bit on the shorter side, but
06:36again,
06:37it's very important information. So if you have a friend or family member who would benefit from it,
06:41please share it with them. I implore you. A lot of people are getting a lot of benefit from these
06:45videos
06:46and I don't ask for anything in return, just that you share it. Thank you so much, everybody,
06:50and have a prosperous day.
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