There is a financial rule, and it is going to help you save money to travel, buy a car, put money towards your side hustle, and save for your future.
Why should you use it?
Top business people in the world use it. These millionaires are using this rule to grow their net worth. So, let us be financially savvy and take advice from the 1%.
This rule will tell you if you should buy those tacos or make them at home.
It is called the 80/10/10 rule.
The 80/10/10 rule divides your income into three parts. It allocates 80% towards living expenses, 10% towards a regular savings account, and the last 10% towards retirement.
Should you always splurge on the extra guac?
Let us find out.
Here is how the 80/10/10 rule works.
80% of your income should go towards:
Rent
Car
Insurance
Gas
Groceries
Public Transport Tickets
Small Lifestyle Expenses (i.e., drinks on the weekend, amusement parks, etc.)
10% of your income should go into a savings account to typically use for:
Emergencies
Significant Lifestyle Expenses (i.e., travel, car, furniture, etc.)
The last 10% of your income should go into a long-term investment fund like a 401K or a ROTH IRA.
Here is how to figure out these percentages.
Let us say you make $4,000 per month.
Multiply your monthly income by 0.8 to figure out what 80% of your income is. In this case, 4,000 x 0.8 = $3,200
Multiply your monthly income by 0.1 to figure out what 10% of your income is. For example, 4,000 x .1 = $400
Each month, you should be spending $3,200 on the necessities like accommodation, transport, food, and smaller lifestyle expenses. $400 should go towards a savings account and another $400 towards a long-term investment account.
Using this rule, you will find that your income starts to divide itself appropriately into all the places you need. With this 80/10/10 rule, you will have three accounts: A Checking Account (80% of income), a Savings Account (10% of income), and a long-term investment account (10% of income).
The idea behind this financial strategy is to avoid overspending and to have emergency savings accounts and retirement funds. If you are spending 90% of your income on rent, car, insurance, and small lifestyle expenses, you know that you are not making enough money to suffice this lifestyle. This automatically shows you that you are not putting enough into an emergency savings fund or allocating enough towards future needs.
The most successful business people in the world use the 80/10/10 rule. These millionaires use this rule to use their money as efficiently as possible.
Can you afford the extra guac?
Let us find out.
