Blog — Sisters for Financial Independence (2024)

FAQs

What's the 50/30/20 rule and how does it work? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

50-20-30 rules is an easy way to know how to achieve financial freedom in 5 years. Split the cash-in-hand into 3 equal parts as per the rule. 30% of income is spent on wants, 50% on needs, and 20% is set aside for savings and investments.

Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.

In his free webinar last week, Market Briefs CEO Jaspreet Singh alerted me to a variation: the popular 75-15-10 rule. Singh called it leading your money. This iteration calls for you to put 75% of after-tax income to daily expenses, 15% to investing and 10% to savings.

The five pillars of financial planning—investments, income planning, insurance, tax planning, and estate planning— are a simple but comprehensive approach to financial planning.

The main aspects in achieving financial security is budgeting, reducing expenses, eliminating debt, and increasing savings. These four aspects are the building blocks to financial freedom and will help you kick-start your financial success.

Are you financially healthy? Many financial experts agree that financial health includes four key components: Spend, Save, Borrow, and Plan. It is crucial that you actively work on improving the health of each one.

Perhaps surprisingly then, financial freedom comes at a much lower price point in the eyes of the average American, according to Empower—about $94,000 a year, is how much they said they'd need to earn to feel financially independent. But that's still about $20,000 more than the median household income of $74,580.

Through investments, royalties, rentals, and revenue, passive income is money you earn without the need for ongoing work. It's not linked to a regular job and doesn't require your constant attention. This means more freedom, flexibility, and cash for you.

To retire early, you may need to max out your employer's retirement plan, individual retirement accounts (IRAs), health savings accounts (HSAs), and any other investment vehicles you use. Within your investment accounts, you might allocate funds to stocks, bonds, mutual funds and other investments.

What makes someone financially successful? ›

Successful savers and investors understand that they must have a sense of personal agency in the outcome of their situation—or what some in the behavioral finance community call an “internal locus of control.” They understand that they have choices as well as responsibilities to learn and understand those choices, that ...

Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000. 30% for wants and discretionary spending = $1,500.

It may not work for everyone. Depending on your income and expenses, the 50/30/20 rule may not be realistic for your individual financial situation. You may need to allocate a higher percentage to necessities or a lower percentage to wants in order to make ends meet. It doesn't account for irregular expenses.

The 50/30/20 has worked for some people — especially in past years when the cost of living was lower — but it's especially unfeasible for low-income Americans and people who live in expensive cities like San Francisco or New York. There, it's next to impossible to find a rent or mortgage at half your take-home salary.

Disadvantages of the 50/30/20 Budget

Many people find it hard to allocate 20% of their income toward savings. If you live in a large metropolitan area with a high cost of living, it may be difficult or impossible to include all your needs with only 50% of your income.