Achieving financial freedom or financial stability in the future will be easy if done with proper financial planning. One financial pattern that you can try is the 50/30/20 formula. This principle was first popularized by one of the 100 most influential people in the world according to Times magazine, namely Elizabeth Warren. In simple terms, the 50/30/20 method is to allocate 50% of your income for basic needs, 30% for personal needs, and 20% set aside for savings and investments.
To make it easier to understand this concept, consider the following explanation:
Put 50% of Income on Basic Needs
First, put 50% of your income on basic needs. These needs include buying food, toiletries, electricity costs, transportation costs, health costs, and so on. Try to make notes for these expenses so you don’t overspend. For example, if your monthly income is IDR 15 million, that means you can allocate IDR 7.5 million for basic needs. It should be noted that health insurance/life insurance is also included in the budget allocation for basic needs.
Put 30% of Income on Personal Needs
Next, allocate 30% of your salary for personal needs or entertainment. For example, for subscriptions to Netflix or Spotify streaming services, traveling, staycations, shopping, and others. Everyone needs self-reward and this is okay. So you can allocate 30% of your income to fulfill your personal desires.
Put 20% of Income into Savings and Investments
Saving and investing are an important part of managing finances. Allocate 20% of your monthly income for this post and place it in a special account. Try to diversify into different investment instruments and adjust them according to your needs. Choose an investment instrument that suits your risk profile and investment period so that your financial goals are achieved.