Elizabeth Warren, Harvard Law Professor, now Senator, and her daughter, Amelia Warren coined the 50/30/20 budgeting rule in their book – All Your Worth: The Ultimate Lifetime Money Plan
Here is the story of Warren’s 50% – 30% – 20% rule of the thumb.
A few years ago, Senator Elizabeth Warren observed that most Americans weren’t saving for a rainy day. They were living paycheck to paycheck just like many of us are today in South Sudan. Perturbed by this behavior; Senator Elizabeth took it upon herself to find out why? So, she carried out research and found that people didn’t a guiding compass. Especially, the poor didn’t have a guide or financial literacy knowledge. Together with her daughter, Amelia, they came up with a balanced money formula which they coined the 50/30/20 rule. That’s how the formula was born.
For years now, personal financial gurus have used this formula to guide their struggling clients. Many personal financial advisors have prescribed it as a cure to financial woes caused by indisciplined money habits. It’s said financial success isn’t a result of how much money one earns, it boiled down to these two words financial discipline.
Those who religiously practice the 50/30/20 rule build for themselves a secured financial future that comes with financial freedom and peace of mind.
So, how does the formula work? It’s simple, it’s just a resource allocation formula. Here it is.
- 50% to needs;
- 30% to wants, and
- 20% on Savings
Needs – basic life requirements for living. They include food, shelter, and water.
Wants – are things we can do without. For example, eating in a restaurant or taking coffee or tea in a restaurant instead of eating at home.
Saving– is basically investing in your future by simply putting aside a portion of your income for a rainy day.
The good news is the formula is flexible, not rigid. 50/30/20 is the baseline: 50% goes to your needs, 30% goes to your wants, and 20% goes to financial goals.
Generally, financial success has a pattern because money follows the money. It takes discipline and self-control to prosper. So many of us, South Sudanese are living hand-to-mouth. So, the 50/30/20 rule is good for us, South Sudanese to entrench financial discipline in our vocabulary.
Here is a story about investment;
Once upon a time, a businessman was going on a journey, before he traveled he called his workers for a meeting. He informs them about the journey. He said he needed to leave some money with them which they will put into use. And when he returns he will ask each to account for his share. So, he gave $5000 to worker number one, to worker number two, he gave $2000, and $ 1000 to worker number three. After a few years, he came back. So, he called the three workers to account for his money as he had promised. To worker number, he started; I gave you $5,000 what did you do with the money. “sir, while you were away, I deployed your money. I traded with it and earned $5,000 more on top”, said number one. “now, your money is totaling to $1,000. Here it is”, he said.
Well done, said the businessman.
Then came worker number two, “sir, just like worker number one, I traded with your money and grew it to $5000 in total. I made an extra $3000 from the two thousand you gave”, he said.
Well done, you did well too.
The final person was worker number three, he said, sir. “I took good care of your money, I know you are a hard worker, you work hard for it. When you gave me your money I wrapped very well and dug a place and hide it so that they don’t steal it, fortunately, they didn’t steal it. So, when I heard you were returning I dug it up, and good enough it was in good condition. Here it is, you can have it back, thank you,” he commented
To his surprise, the businessman took that $1000 from him and gave it to worker number one.
Did I hear you saying that isn’t fair, indeed, that’s true? Life is unfair that’s why money goes to those who have plenty of it.
This story is taken from the bible you can reach the book of Luke for an in-depth understanding of the true story.
This is an example of how you can practically operationalize the 50/30/20 budgeting rule as promoted by Elizabeth Warren and Amelia Warren. For the purpose of this article, I will use the dollar for ease of calculation, however, you need to apply the formula to your income whether your source of income is salary or it’s from your side hustling.
Your total monthly Income/revenue is $1000
| Items | Ratio | Portion |
| Needs | $1,000 x 0.5 | $500 |
| Wants | $1,000 x 0.3 | $300 |
| Savings & investment | $1,000 x 0.2 | $200 |
| Total | $1,000 |
That’s how you can practically operationalize the balanced money formula. And as I said this formula is adjustable it is not static you can adjust it from time to time, however, you shouldn’t overspend on one item, and by overspending, I mean you don’t need to be heavy on needs or wants. Also, strive to balance your allocable needs.
© Omiri, July 2022
