Merakyat.org – In the ever-evolving world of personal finance, the traditional 50/30/20 budgeting rule has been a staple for many. This rule suggests that individuals should allocate 50% of their take-home pay to needs, 30% to wants, and 20% to savings. However, a recent twist to this rule has been introduced by financial influencer Katie Gatti of “Money with Katie” through a YouTube video. She proposes the 50/38/12 budgeting rule.
Gatti’s version is notably more stringent. She advocates for saving a whopping 38% of your take-home pay, leaving only 12% for discretionary spending or the “fun stuff.” Her rationale? Accelerating savings now can lead to achieving financial freedom much sooner. “By saving 12% instead of spending 30% on wants, you can significantly reduce the time it takes to achieve financial independence,” Gatti emphasized in her video. She believes that the money set aside strategically every month or year will offer the highest return on investment and go the farthest for individuals.
But what do experts say about this new budgeting rule?
The Upsides of the 50/38/12 Rule
The stricter version of the traditional budgeting rule does come with its advantages. Kendall Meade, a certified financial planner at SoFi, believes it can be beneficial for those aiming to save faster, be it for retirement or shorter-term goals like vacations or home down payments. This rule can also help individuals adapt to living on a tighter budget, which can be beneficial in the long run. Natalie Warb, a financial expert at CouponBirds, adds that this approach can expedite the journey to financial freedom and provide a robust foundation for a comfortable retirement. It also enhances financial security by creating a safety net for unforeseen expenses.
The Downsides of the 50/38/12 Rule
However, this budgeting rule isn’t a one-size-fits-all solution. Meade points out that it might not be suitable for those who wish to indulge in their younger years, like traveling. There’s also the risk of “revenge spending,” where individuals might overspend one month as a reward for being frugal the previous month. Warb also notes that this budgeting philosophy might not be feasible for those with lower incomes or those burdened with significant debts.
At the end, while the 50/38/12 budgeting rule offers a fresh perspective on savings and spending, it’s essential to assess personal financial situations and goals before adopting any budgeting method.