How To Calculat The Finances Of The 50-30-20 Method, Here's The Smart Formula To Allocate Funds

Illustration of How to calculate the finances of the 50-30-20 (Freepic) method

YOGYAKARTA - Budgeting is an important step so that the money they have can be allocated wisely and maximally. There are various budgeting methods that you can apply, one of which is the 50-30-20 formula. So how to calculate the finances of the 50-30-20 method?

Many people choose to use the 50-30-20 budgeting method because it is considered effective in managing monthly finances. For those of you who have had difficulty saving or wasteful spending, this budgeting method will help you be wiser in managing finances.

So what is the 50-30-20 budgeting method and how to calculate it to manage finances?

The 50/30/20 budgeting method is a way to allocate or divide financial funds into three aspects, namely basic needs, personal desires, as well as savings or savings for the future.

This budgeting concept was popularized by United States Senator Elizabeth Warren in the book "All Your Worth: The Ultimate Lifetime Money Plan". This method was even made based on research results for 20 years.

Distribution of funds in this method, using benchmarks of 50.30 and 20 for the percentage of funds that must be allocated into three aspects. The calculation is 50% for basic needs, 30% for personal needs, and 20% for savings or investment.

As much as 50% of your income is used for basic needs that cannot be abandoned and must be prioritized. These various basic necessities include housing costs, monthly food costs, transportation costs, bills (electricity, internet, water), and others.

Meanwhile, the allocation of 30% of funds for personal desire is intended for the things you want to have, but not including basic needs. Tertiary or secondary needs that you may want, such as holidays, gadget upgrades, buying hobby equipment, watching concerts or movies, and others.

The remaining 20% is used to allocate to savings and investment in order to build your financial security in the future. Allocations to this aspect can be in the form of emergency savings, personal savings, investment capital, and others.

Here are a number of benefits that you will feel when applying the 50-30-20 budgeting method:

If you don't have a private budget plan, you can consider using the 50/30/20 approach because this approach is simple both in calculating and recording. The principle is quite easy, you only need to calculate your monthly income and divide it into three main categories.

Besides being simple and easy to understand, the 50/30/20 budget method is also very flexible, according to individual income. Everyone has different basic needs, personal desires, and financial goals, so they can adjust the allocation of funds according to their respective preferences.

Making a planned allocation of funds in general will help you better understand your financial capacity. If you don't know how much your financial capacity is, you'll find it difficult to determine what you can buy and what you should avoid. On the other hand, if you have a clear understanding of your financial capacity, you can manage your expenses so as not to go beyond your income.

One of the main benefits of the 50/30/20 approach is to create a better balance between your needs and desires. With this approach, you can feel more confident in fulfilling your wishes such as buying new clothes, taking a vacation, or trying new things because you've allocated funds for it.

Maybe you are still confused about how to apply the 50-30-20 budgeting method, even though the calculation formula is very easy. For example, you have a monthly salary of IDR 8 million.

Every month there are various basic needs that you have to fulfill, such as house installments, electricity and internet costs, transportation, food money, and others. But you also have the desire to do certain activities or buy goods. In addition, you also have to set aside some salaries to save.

So tips on formulas or methods of distributing funds that you can apply as follows:

50% of IDR 8 million = IDR 4,000,000

30% of IDR 8 million= IDR 2,500,000

20% of IDR 8 million = IDR 1,600,000

That's how to calculate the finances of the 50-30-20 method and its benefits for your finances. If all this time your financial management is still messy, causing excessive spending, you need to apply this budgeting method.