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We’ve all been told to create a monthly budget.

It’s one of those things that people throw at you when you begin earning a salary and need to start planning for the future.

The common procedure is to sit down and work out how much to spend on your current lifestyle. Then there’s figuring out how much to save. Oh, and what about retirement?

It’s overwhelming, and for most people, a trial and error process that wastes time while you do the maths, before seeing what happens as the month plays out, and then adjusting the figures.

US-based Fidelity identified this as a common problem and did some research to figure out how to make things easier.

They analysed hundreds of scenarios to create a saving and spending guideline that can help people save enough to retire.

It’s called the 50/15/5 rule.

Here’s how it works…

50% – Household Expenses

Some expenses aren’t optional, like paying rent or eating, but you shouldn’t allocate more than 50% of your take-home pay to them.

For housing, expenses include mortgage, rent, property tax, lights, and water. Food should account for groceries only, not takeaways.

Then there are medical aid premiums, and transportation (petrol), childcare and education, debt payments, and other obligations like your phone bill.

15% – Retirement Savings

It’s important to save for your future no matter how young or old you are. Not everyone’s job comes with a pension plan, and apart from that, you need to consider how much you’ll need to maintain your lifestyle.

Simply put, your pension alone likely won’t be enough to sustain you, which means that you’ll need to have some savings tucked away. The ideal percentage of your salary that should be put aside is 15%.

5% – Short-Term Savings

This is the emergency fund because no matter how much you budget for what lies ahead, life happens, and when life happens it can be pricey.

Emergency funds, or 5% of your take-home pay, would usually be set aside for job loss or a health emergency, but you may also be confronted with unforeseen, smaller emergencies.

Who of us hasn’t had a geyser burst at the most inopportune time of the month?

KFM has some suggestions for what to use the remaining 20% for.

This is the fun money that can be spent on takeaways, clothing, luxuries, holidays… you know, the stuff that makes saving worth it.

The 50/15/5 rule is a starting point, but it doesn’t take into account everything like investments, or other expenses. It’s also not a surefire way to grow your wealth, because if you really want to do that and do it well, you may want to bring in an expert.

If you’re looking for one of those experts, who can take the reins and ensure that your wealth grows and your retirement starts out on the right foot, we recommend bringing Consequence Private Wealth into your decision making and planning.

They’ll do the hard work so that you can relax when the time comes to settle into your golden years.

[sources:fidelity&kfm]