The downside of the 50/30/20 rule to save and its most fearsome enemy: “It breaks the balance”

Saving is a constant task that requires enormous perseverance and discipline. That is perhaps what makes citizens always look for the most effective formulas to achieve their goal. There are numerous ways to achieve the desired savings, but generally we prefer the simplest methods to execute in our daily lives.

One of the most popular is the 50/30/20 rulealso known as The Balanced Money Formula. “This method stands out for its simplicity and flexibility. In addition, helps many people calculate your monthly expenses and achieve your financial goals without having to create complicated budgets,” explains Openbankthe bank on-line of the Santander Group, on its website.

Specifically, this rule suggests assigning 50% of our periodic income to necessary or essential expenses (housing, food, transportation…); 30% to expendable expenses or whims (leisure, entertainment, non-essential clothing…); and the remaining 20% ​​to savings or investment (emergency fund, deposits, shares…)

Devised at the beginning of the century by Elizabeth Warren and his daughter Amelia Warren Tyagi in his book All Your Worth: The Ultimate Lifetime Money Plan (2005), this method has as its main objective “balancing personal finances to guarantee both stability and enjoyment”, since the authors perceive that “many people face financial imbalances due to excessive spending in leisure or in financial commitments greater than what their income allows”.

However, if this formula is applied excessively rigidly, it can cause disruption to our personal finances, especially if we have to pay certain loans. “The 50-30-20 rule works as a starting point. Half of income is reserved for needs, 30% for desires or leisure and 20% for savings, but It is advisable to adjust it if there are debts, variable income or demanding goals.“explains Leticia Pooleprofessor of Economics and Business at the European University of Valencia.

For example, Anyone who intends to buy a home can temporarily increase the savings portion and cut back on leisure until the goal is reached. Or those who are self-employed can create a larger cushion and be flexible with the desire part in months with less income.

“It is not a large isolated outlay that is out of place”

However, Poole warns of the main enemy of the 50/30/20 rule and that can upset our accounts: those known as ant expensessmall and frequent payments that we make out of habit and that reduce our personal finances without realizing it. “For example, a daily expense of a coffee or monthly subscriptions They become heavier expenses than they seem and break the budget balance. It is not a large isolated outlay that throws the budget out of balance, it is the repetition,” he says.

“If small expenses are not controlled, The available savings are reduced and the objectives take much longer to reach”says the professor at the European University of Valencia, who points out that some warning signs are “not knowing precisely where the money is going, not being able to save constantly or postponing goals due to lack of liquidity.”

“If small expenses are not controlled, the available savings are reduced and the objectives take much longer to reach”

To remedy financial imbalances, the recommendation is to carry out a monthly audit of movements, which involves reviewing statements, classifying expenses by category and detecting duplications. Once done, and with the aim of reducing expenses, it is time to cancel subscriptions that are not used, regroup services, deactivate automatic renewals and renegotiate mobile or internet rates.

Poole also advises resorting to small behavioral tricks to curb spending, such as “pay cash for part of the leisure to better visualize the expensewait twenty-four hours before buying something non-essential, set a weekly limit for indulgences and stop when it is reached.” Another useful lever is “automate savings at the beginning of the month so that the money destined for objectives leaves before the ant expenses appear,” concludes the expert.

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