Speaker 1: Welcome back to whiteboard finance. My name is Marco and I'm here to help you master your money and build your wealth. Today we're talking about how to manage your money using the 50 30 20 rule. But before we get into the video I just want to show you very quickly a screenshot here of a poll that I ran about two weeks ago. So we have a lot of new subscribers to this channel which is great and about eight hundred and thirty four of you voted on this poll which is awesome. So basically that poll is just asking what kind of videos you want to see from this channel and 30 percent of you said personal finance related 22 percent said stock market 18 percent said cars 17 percent want to learn more about real estate investing and 13 percent said how to make money online. But the encouraging thing is is that most of these comments from this poll were people saying they wanted to learn about all these things. So thank you so much to those who did vote and contribute. And that's why I want to talk about personal finance in this video today. So you may be wondering what the 50 30 20 rule is. So as always let's write this down so we can get a visual representation of what this means. So pretend that we have a pie right here and half of this pie which is the 50 percent actually stands for your needs. So again this is all about budgeting and understanding where your money is going and I and an ideal personal budget portfolio. So 50 percent are needs. Let's call this 30 percent are going to want and then 20 percent is going to savings or paying off debt. So now that you have a visual representation let's break down each one of these numbers and give you examples of each so that you can be gauging your own personal finance based on these metrics. Keep in mind we're working with after tax dollars which is called net income. You may have a gross pay of let's say 50 grand a year but after taxes you're only dealing with another specific number. We're using that after tax dollar number. So in terms of the 50 percent needs what are some things that can be included in this. So let's think about regular living expenses. So we have groceries we have housing whether you have a mortgage or rent you have insurance for health. Heaven forbid something happened to you. I would consider health insurance definitely a need. You can have utilities so electricity things like that etc etc. So the way I define a need is that it's basically something that would greatly inconvenience you or something that you literally cannot live without. So food shelter things like that. So when you budget 50 percent towards your needs. Remember that those are what you're looking at. So the next logical area to go into is going to be what is really considered a want. And I think this is where most Americans run into with the difference between wants and needs. OK. So a want is something that causes a minor inconvenience in your life. OK. It's not necessarily a need to where hey if I don't eat or if I don't have shelter I may die. Right. So a want is something where it's like hey you know am I willing to give a minor inconvenience like dropping Netflix or not having Hulu or not buying a brand new grill to grill a steak on. You know those are needs. OK. So some of the things that would fall under this category would be things like shopping. You absolutely need to shop for brand new clothes right this second or you're going to drop dead if you don't get a new pair of shoes. Maybe my wife will but I know that I can survive. You know dining out. I think this is a big one for Americans. A lot of people for whatever reason their lifestyles are so busy that you know it's easier just to jump in the car and go grab something to eat rather than preparing the food yourself. Hobbies so I think that everyone should definitely have a hobby that's one of the greatest joys of life whether it's gardening you know you fly drones you're a video editor whatever you want to do whatever it keeps you happy as a hobby. This definitely falls under a want because it's not necessary to live. So again guys I want is something that you don't necessarily need but it improves the quality of your life greatly. So let's go to the last 20 percent and I know a lot of this sounds basic but until you actually write this down and understand where all your money is going to it's like your wants can easily creep into that needs category to where they're both overflowing and you're in debt every month. So speaking of debt let's talk about savings. OK. So savings and paying off debt. This is where the last 20 percent of your income should go to. And again these are all net numbers. So if you have let's call let's say for example an emergency fund OK. This I would consider savings. What I like to do for emergency funds. This is 6 to 12 months of living expenses. So if you know that your needs category and a little bit of wants comes out to be let's say two thousand dollars a month for your entire family. You know that you need to save about 12 to 24 thousand dollars in your emergency fund. I know that sounds like a lot of money but you know one or two layoffs in a family of you know one or two income earners that can really save your butt right there. You guys obviously you know paying off debts. So if you have credit cards you know student loans things like that. These are debts that you should just smash using that 20 percent. And I will make another video about how to actually pay off debt using the debt avalanche and the debt snowball method. OK. And then obviously if you want to save for retirement in my opinion this is one of the things that most Americans will be suffering from 20 30 years from now because a lot of them are just not focusing on retirement savings. So I know a lot of this stuff sounds like common sense you guys. But until you actually create a monthly budget knowing what your monthly net income is breaking it down by 50 30 and 20 percent you'd be surprised that we're different dollars go for different categories. So unless unless it's not a want or a need I would definitely put it under this 20 percent savings and debt category. So that's pretty much all I have for you guys today. I know that this may not be some earth shattering information but again until you actually write it down and understand where every single one of your after tax dollars is going you might be surprised. So I know this video is a little bit on the shorter side but again it's very important information. So if you have a friend or family member who would benefit from it please share it with them. I implore you. A lot of people are getting a lot of benefit from these videos and I don't ask for anything in return just that you share it. Thank you so much everybody and have a prosperous day.