Due to the impact of rising costs from inflation and stagnant wage growth, we thought this would be a good opportunity to explore a well-known savings method known as the 50-30-20 Rule. This popular method suggests setting aside 50% of your income to essential expenses, such as housing, food, and transportation, 30% towards optional spending, such as entertainment and hobbies, and the last 20% towards savings and debt repayment. Let’s expand upon these areas and create a more exhaustive list to see where our money goes… or does not!

Essential Expenses (50%)
Rent or mortgage paymentProperty taxes (if you own a property)

Home insurance or rental insuranceUtilities (electricity, heating, water)\

Internet and phone

Groceries

Maintenance and repairs (for home and car)

Auto insurance 

Car-related expenses (car payments, fuel, license, registration, insurance, etc.)

Clothing 

Some Additional Essential Expenses (if applicable)

Childcare expenses

Pet expenses (veterinary care, food, grooming)

Life insurance premiums

Professional fees (tax accountant, lawyer, etc.)

Financial services fees (banking fees, investment fees, etc.)

Education expenses (tuition fees, textbooks, etc.)

Public transportation

Where things get challenging with developing a savings strategy is with optional spending. This is where discipline and delayed gratification become essential. In the quest to save and repay debt, the ability to forgo ‘wants’ and live without, becomes a real test. Optional spending is dictated by lifestyle needs and one’s ability to limit any superfluous expenditures.

Optional Spending (30%)

Gym or fitness club membership

Streaming services (Netflix, Amazon Prime Video, Hulu, etc.)

Cable or satellite 

TV subscription

Magazine or newspaper subscriptions

Music streaming services (Spotify, Apple Music, etc.)

Video game subscriptions or purchases

Dining out at restaurants or takeout meals

Entertainment expenses (concerts, theater tickets, sporting events, etc.)

Hobbies and recreational activities (art supplies, golf fees, yoga classes, etc.)

Shopping expenses (clothing, accessories, electronics, etc.)

Home improvement or decoration expenses

Travel expenses (flight tickets, hotel accommodations, car rentals, etc.)

Beauty and personal care expenses (salon/spa services, skincare products, etc.)

Subscriptions for online platforms or services (educational courses, etc.)

Charitable donations or contributions

Alcohol or bar expenses

Coffee or tea expenses (purchases from cafes or coffee shops)

Movie theater or cinema tickets

Home cleaning or maid services

Savings and debt repayment (20%) 

At the end of the day, it all comes down to how much you're able to save, and how smart you can be when it comes to deciding what to do with your savings. Cash under a mattress might be quick and convenient to access, but it doesn’t grow or earn interest. Smart saving usually means smart investing, and with so many options available these days, it’s important to seek out professional advice. Are you interested in the stock market? Crypto currency? Real estate? Or do you prefer the security of a GIC and registered retirement savings plans? (RRSP).

No matter what plan or strategy you use, you must also learn how to limit spending in order to leave enough room in your budget for saving and investing. 

Here are some of the best methods you can use to develop a savings plan and achieve your financial goals:

• Develop budgeting skills: Learn about budgeting by understanding the concept of income and expenses. Allocate a portion of your earnings towards saving before spending on non-essential items.
• Have open conversations about why saving money is important. Talk with your spouse or partner about the benefits of having financial security, being prepared for unexpected expenses, and the possibilities of what savings can offer in the future. 
• Use visual aids: Utilize charts, or jars labeled with different savings categories to visually represent your savings goals. 
• Set achievable goals: Set savings goals that are attainable and realistic for your circumstances. Break down long-term goals into smaller targets.
• Be prepared to make short-term sacrifices for long-term gains. 

Remember, consistency and patience are key when saving. By using these methods, you can develop a lifelong habit of saving money and becoming financially responsible.At TEAM BROADY, we understand the reality of financial constraints and can help you purchase a home within your budget, or downsize to a smaller home to better suit your financial situation. Let us help you create a plan together. We can be reached at 514-613-2988 or by email at info@teambroady.ca.