This is how you can effectively save money

Dividing up your own money can often be difficult in everyday life. But with the so-called 50-30-20 rule, you could easily do this in the future. We explain how the savings method works.

Whether for the next trip, a new car or retirement provision – many Germans put money aside for this every month. That has one conducted by Kantar Survey commissioned by the Association of Private Building Societies in spring 2023.

According to this, 51 percent of Germans save for their old-age provision. The purchase of larger goods, such as the purchase of a car, took second place with 47 percent. On the other hand, only seven percent of those surveyed stated that they put something aside for their nest egg.

But how do you manage to set aside money for these things? One possibility is the 50-30-20 rule – we’ll explain how you can use it to split your monthly budget.

How to save with the 50-30-20 rule

The 50-30-20 rule is based on a simple principle. Because it divides your monthly budget into three different areas based on percentages.

Accordingly, you should split your income as follows:

• 50 percent for your fixed costs
• 30 percent for leisure activities
• 20 percent as a reserve

You should include this in your fixed costs

Your fixed costs include all expenses that you have to pay regularly every month. This includes your rent and all other expenses for your apartment such as electricity and internet. But you also have to add entertainment such as subscriptions to Spotify, Netflix and Co. here.

When calculating your fixed costs, also note that some expenses are not collected monthly. This can be the case, for example, if you pay your license fee quarterly or your insurance annually.

You should also roughly estimate how much money you need for groceries each month. Because these expenses are also part of your monthly fixed costs.

50-30-20 rule: The other half goes to free time and savings

The second half of your earnings is divided between your time off and your reserve according to the 50-30-20 rule. 30 percent flow into your leisure activities.

This can include restaurant visits or concerts. But you can also use this pot to pay for your next vacation.

If you don’t want to keep the money in your account because you’re afraid to spend it, you can also use the cash stuffing method. You divide your different budgets into envelopes, for example – but you can of course also fall back on the good old savings stockings.

Set aside the remaining 20 percent of your earnings for your reserve using the 50-30-20 rule. This money can be your nest egg in an emergency. That’s why you should really separate it from the rest of your budget.

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