How the 80-20 saving formula works

We all want to save.

But how do you actually do it? How do you budget your income? Is your salary enough to cover your needs and wants?

As such, we introduce to you the 80-20 saving formula, patterned after the Pareto’s Principle, the “law of the vital few.”

Here’s how it should go: The rule is simply to save 20% of your net income, and then spend the rest (50% needs + 30% wants = 80% spending).

If you exceed 80% for needs and wants, then you are spending beyond your means, and could be a reason why you will be in debt.

So, if budgeting is not your forte, this formula is for you.

Adjust your lifestyle. Strike a balance in looking after your present well-being and taking care of your future. This saving practice definitely works to strike the balance between spending and saving – saving for the future and spending right for your needs and wants. If you adjust your lifestyle according to your goals, then you are good to go. Be sure to properly define what your needs and what your wants are.

Make it fail-proof. This rule may not work for all simply because people have different lifestyles, spending, and saving habits. Moreover, we have different personal goals, dispositions, and income levels. For some, the 80-20 saving formula can be a challenge.

Keep trying, keep practicing. Like any firsts, the 80-20 saving formula rule could be difficult at first. Keep trying until the day comes that it is no longer a chore for you to set aside a part of your income before you spend for anything. Here are 4 tips to ease your way adhering to the formula:

  • Do a research and compare deals when paying for a product or service

  • Use envelopes when you keep your cash and label them for specific payables

  • Keep a mindset during paydays that only 80% of your net pay is for spending

  • Enroll in a regular (monthly or bi-monthly) auto-debit savings account

Practice makes perfect. If you make it a point that this practice is no-sweat for you, it will be easier to be more flexible in your finances later on. Eventually, investing and paying off all your debts will be as easy as saving. After years of practicing it, investing and spending your money might be the only problem left for you to deal with – and that is a good problem.

Do you think you can follow the 80-20 saving formula?