How can I use the 80/20 method to save money?

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At Edward Jones, we believe rich is about taking care of what gives your life meaning. That's why your financial advisor personalizes your plan to help you preserve your progress and create something that lasts. Let's find your rich. Edward Jones, member SIPC.

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How can I use the 80-20 method to save money?

Thanks for asking. If you're like many people, you probably want to save money, but hate the idea of budgeting. Maybe you don't like tracking every single expense or feeling restricted by spending categories. Maybe you just want a simple and flexible way to manage your money without too much hassle. That's where the 80-20 method comes in, also known as the anti-budget or pay yourself first budget. It's a simple approach to saving money that doesn't require a lot of maths or planning. It works by dividing your take home income into two parts, 20% for savings and 80% for spending. How does the 80-20 method work? The first 20% of your paycheck should automatically go towards investments, savings or debt repayments, starting with an emergency fund that covers three to six months of your expenses. The remaining 80% goes towards needs and wants, including food, rent, utilities, entertainment and anything else you want to spend your money on. But how you choose to spend that money is up to you. The important part of the rule is that no matter what, at least 20% of your income is going towards your long-term financial goals. Why should I use the 80-20 method? This method is best for those who don't need or want structure, who don't like to track their spending or who are new to budgeting. It's also a great way to build momentum and motivation by seeing your savings grow over time. How can I use the 80-20 method? To use the method, all you need to do is multiply your take home by 0.2 and then set up an automatic transfer from your current account to your savings or investment account on payday.

This way, you won't forget to set the money aside or be tempted to spend it. The money that hits your current account is yours to spend as you please.

For example, if your take home pay is £2,000 per month, you would put £400, 20%, into savings and have £1,600, 80%, for spending. You can use that money however you want as long as you don't go over your limit. What are some drawbacks of the 80-20 method? The method is not perfect. It doesn't account for changes in income or expenses. It doesn't help you prioritise your spending or reduce unnecessary costs, and it doesn't guarantee that you'll reach your financial goals. You may need to adjust the percentages based on your situation and preferences.

But if you're looking for a simple and easy way to save money without tracking every single expense, then it's a good starting point for building a healthy savings habit and achieving financial stability. There you have it.

Now you know how the 80-20 method works. In under three minutes, we answer your questions and help you understand the true meaning behind the trends, concepts and acronyms that are making headlines. Listen along and you really will know for sure.

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At Edward Jones, we believe rich is more than caring about the latest and greatest. It's also taking care of what gives your life meaning. That's why your dedicated financial advisor meets you where you are, with personalized financial strategies that help protect what matters. So you can preserve your progress while creating a path forward.

The key to being rich is knowing what counts. Let's find your rich together. Edward Jones, member SIPC.