Income Distribution Method
Senator Elizabeth Warren promoted the so-called "50/20/30 budget rule" in her book, All Your Worth: The Ultimate Lifetime Money Plan. This rule is based on the salary division model, to 50% on needs, 30% on wishes, and 20% in savings.
Salary division model
50% living needs
Requirements include your necessary living expenses and invoices you are required to pay, such as rental or mortgage payments, car expenses, grocery stores, insurance, health care, etc. The "Needs" category does not include additional items such as Netflix, Starbucks, and dining abroad.
Half of your income must be all you need to cover your living needs and obligations. If you're spending more on your needs, you'll need to rationalize your needs or try to reduce your lifestyle, perhaps by moving into a smaller house or an economy car, or cooking at home instead of eating out.<ref>What is the 50/20/30 Budget Rule? Investopedia. 2021-12-17.
30% desires and accessories
Desires and luxuries are all those improvements that make your life easier and those extras you spend money on to make your life more fun. This category includes the costs of eating out, watching new movies and clothes, vacations, and the Internet. You can save, for example, by exercising at home instead of going to the gym, cooking instead of eating out, or watching sports on TV instead of getting tickets to the game.
20% savings
Finally, try to allocate 20% of your net income to savings and investment. This includes adding funds to the emergency fund in the bank savings account and possibly investing in shares, etc. You must have enough savings to cover at least three months in case your job is lost or an unexpected event occurs.Don't forget to focus on retirement and achieving other financial goals in the future as well. If emergency funds are drained, the first allocation of additional income should be to renew the emergency fund account in anticipation of what may happen.
Rule 50-20-30 aims to help individuals manage their income. Each family must prioritize the establishment of an emergency fund in the event of loss of employment, medical expenses, or any other unexpected financial cost. If the emergency fund is used, the family should focus on renovating it.
Summary
Splitting salary is not easy, and life often throws unexpected expenses at us. But thanks to a 50-20-30 salary division model, individuals have a budget and financial plan that effectively manages their income. If they find that their needs expenses are more than 20%, for example, they can find ways to reduce those expenses and then direct funds to more important areas such as emergency funds and retirement.