Maximize Your Money with the 50-30-20 Budget Plan

9 May 2023
Maximize Your Money with the 50 30 20 Budget Plan

The process of creating your personal budget doesn't have to be time-consuming or difficult since, in reality, the simplest budgeting methods are typically the most effective. As a matter of fact, this can be made possible if you can see the overall picture of your monthly budget. Through this, you can safely avoid overpaying and steadily increase your savings without keeping track of every purchase.


As an example, consider the 50/30/20 rule. A simple monthly budgeting strategy, the 50/30/20 rule specifies what percentage of income should be allocated to savings and what percentage should be allocated to basic living expenses.


In this article, let's find out more about this budgeting strategy.



50-30-20 Plan: The Golden Rule of Budgeting

Allocating your funds between necessities, luxuries, and long-term aspirations may be simplified using the 50/30/20 rule of thumb. Senator Elizabeth Warren, then a professor at Harvard Law School, and her daughter Amelia Warren Tyagi popularized this principle in their book All Your Worth: The Ultimate Lifetime Money Plan. Developed as a general guideline to help middle- and lower-income families budget for emergencies and other unknowns, this rule has become a popular tool.


You can easily arrange your budget by using the 50/30/20 rule of thumb. With this, you may divide your monthly after-tax income by allotting 50% on necessities, 20% on savings and debt repayment, and 30% on luxuries. As a result, you can design a realistic budget and save more of what you earn.


Although, it is an important thing to keep in mind that this is not an absolute rule but a general principle that may be used as a starting point for a sensible budget.



Why Filipinos Find it Hard to Apply the 50-30-20 Plan to their Monthly Income?

Since the 50-30-20 budget plan is an American concept, some Filipinos are skeptical about this rule. In fact, the 50-30-20 rule is often quickly disregarded by Filipinos for the reasons listed below:



1. Difference in cost of living between the US and the Philippines

It's possible that the percentages don't make sense if you're considering their demands and potential savings in light of the higher cost of living in the United States compared to the Philippines.


Let's imagine that after taxes and other deductions, a recent college grad's monthly take-home pay is Php 15, 000. Using the 50-30-20 budget plan, this equates to a total of Php 7, 500, with Php 4, 500 going toward savings and Php 3, 000 going for luxuries.


However, Php 7, 500 per month is not enough to cover rent, food, transportation, utilities, and other living expenses if you are single and do not have any other means of support. As a result, you'd have to cut down on spending on desires and savings, which would throw off your 50-30-20 budget.



2. Cultural differences

Cultural differences are another factor explaining why many Filipinos do not consider the 50-30-20 rule as necessary. Family members in the Filipino culture are more likely to be involved in and have an opinion on daily matters. Also, Filipino culture is characterized by a strong adherence to traditional values.


Meanwhile, most Americans have a pretty broad worldview and a widespread value for individual freedom and personal accountability. Let's get more specific with these examples:



Extended family tradition

A significant percentage of the population in the United States of America is expected to either be completely independent of their parents by the time they reach 18 or to be helping to cover the costs of doing so. In a country like the Philippines, however, where strong family bonds are prized, young people are not expected to leave their parents' house and lot Philippines until well into middle age, considering if they want to live independently and get an investment with an affordable house and lot.


Due to these cultural norms, many Filipinos do not become financially independent until well into their 30s. Many people, by the time they are ready to move out on their own, have acquired poor habits of spending money or have an unrealistic breakdown of their budget due to debt payments.



Ningas-cogon culture

The widespread Filipino feature of "ningas cogon," meaning doing well only in the beginning or lacking consistent tenacity in any goal, also influences Filipinos' saving and budgeting habits.


In terms of sticking to a budget, Filipinos tend to make lofty resolutions at the beginning of the year, like saving more money, but then fall back into old patterns later on. Moreover, when people are paid a lot, they often use it as an excuse to overspend by treating themselves to expensive products instead of putting the money into savings.



Achieve Your Financial Goals with this Pinoy 50-30-20 Budget Plan Version!

There is room for adaptation if the 50-30-20 rule is to be used in the Philippines. Even if it cannot be used exactly as written, it may be made into something more manageable. Here is an idea of how to apply this budget plan to your monthly net income spending categories:



50 %

Half of all income is used for necessities, including 25% of all income for the housing costs. This means that recent grads may have the option to share housing costs with a friend or a colleague.



30 %

You can then have the 30% of your monthly income allocated to luxuries and other discretionary costs.



20 %

Lastly, you can now spend 20 % on necessities on your financial priorities. Expenditures that are not considered necessities may be included here, as well as savings, emergency fund, health insurance, bank account investments, and other similar accounts.


These accumulated save money that you have may then use to investments that can let you gain some passive income.


If you're looking for an investment with lesser risks, you can start your investment journey in real estate. Getting an affordable house and lot for sale and converting it into rental home can give you a regular income every month while paying your monthly mortgage.


Lumina Homes also offer flexible payment methods giving you and our future homebuyers the assistance they need in getting a brand-new home, whether through bank financing or in-house financing.


Discover our over 50 communities nationwide and reserve now one of our townhouse units located close to commercial hubs and various tourist hotspots.



You may better manage your personal money and move toward your financial objectives by creating a monthly budget. If you want to add some order to your budgeting plans, choosing a method like the 50-20-30 rule is an excellent place to start.


By using this adjusted budgeting plan to meet your specific needs, it can provide a more reasonable budgeting strategy compatible with our Filipino culture and lifestyle, helping you learn how much you may spend without compromising your daily essentials.

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