Martin Lewis advises against children's savings in Premium Bonds
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Whether it’s a dream house, a wedding or a holiday, we’re all looking for ways to boost our savings to meet our goals. One simple method some have found success with is the 50-30-20 budgeting rule. Senator Elizabeth Warren popularised the rule in her book, All Your Worth: The Ultimate Lifetime Money Plan.
What is the 50-30-20 budgeting rule?
The 50-30-20 rule involves dividing up income so that up to 50 percent of it is spent on needs like essential living expenses.
This can include things like rent, mortgage payments, utility bills, groceries and insurance.
Then 30 percent of income can be spent on wants, like going to a restaurant, shopping for clothes and trips out.
Wants can also include things like subscriptions, gym memberships and holidays.
Then the remaining 20 percent of income is put into savings, investments or used to pay off debt.
So if someone’s post-tax income is £2,000, they could allocate £1,000 as spending for needs.
Then £600 could be spent on wants like dinners out or shopping, with the remaining £400 put into savings.
Does 50-30-20 work for everyone?
When put into practice, the 50-30-20 rule could help people save up a substantial sum of money over a period of time.
The ratio can be helpful for people looking to reach their savings goals, but it might not be for everyone.
HSBC state on their website: “Remember, everyone’s situation is different.
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“If you find your spending doesn’t fit the 50-30-20 rule, that’s okay.
“But, if it’s realistic for you, it could give you a good goal to aim for.
“Small changes can make a big difference over time.
“Putting a bigger portion of your income into savings, or paying off debt, can help you feel in control and able to make more of your money.”
How much should people have in savings?
There is no set rule on how much people should aim to have saved up, as every person’s situation is different.
But many experts suggest having at least three months’ worth of living expenses stored away for a rainy day.
In the event of an absence of income, this can help to provide a bit of a safety net.
The Money Advice Service explains: “A good rule of thumb to give yourself a solid financial cushion is to have three months’ essential outgoings available in an instant access savings account.
“So if you lose your job, for example, it’ll help buy you three months to find a new one.”
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