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The adjustable percentage savings model

Financial Development
This model divides needs, wants, and savings into percentages according to your expenses.

The adjustable percentage savings model can help you save money consistently, no matter what situation are you in. It helps you to recognize your savings potential based on your net salary.

What is the adjustable percentage savings model?

The rule is a popular budgeting guideline that suggests allocating your after-tax income into three main categories: needs, wants, and savings. For example, here’s a 50/30/20 breakdown of a salary distribution based on this rule:

  • Needs (50%): Allocate 50% of your after-tax income to cover essential expenses and obligations. This category includes items like rent/mortgage payments, utilities, groceries, transportation, insurance premiums, minimum debt payments, and other necessary expenses.
  • Wants (30%): Allocate 30% of your after-tax income to discretionary spending and non-essential expenses. This category covers things like dining out, entertainment, hobbies, vacations, shopping for non-essential items, and other personal preferences.
  • Savings (20%): Allocate 20% of your after-tax income to savings and financial goals. This category includes contributions to your emergency fund, retirement savings, investments, debt repayment (above the minimum payments), and any other long-term financial objectives.

What other examples can be found for this model?

It’s essential to regularly review and adjust your budget as your financial circumstances change. This will help you stay on track with your savings goals and ensure that your spending aligns with your priorities.

Here are some examples of adjustable percentages you can implement based on your net salary:

1. 80/15/5:
• Needs: 80%
• Wants: 15%
• Savings: 5%

2. 70/20/10:
• Needs: 70%
• Wants: 20%
• Savings: 10%

3. 40/40/20:
• Needs: 40%
• Wants: 40%
• Savings: 20%

4. 75/5/20:
• Needs: 75%
• Wants: 5%
• Savings: 20%

5. 60/10/30:
• Needs: 60%
• Wants: 10%
• Savings: 30%

Remember that these percentages are guidelines, and you can adjust them based on your personal financial situation and priorities. For example, If you have higher debt obligations or specific savings goals, you may choose to allocate a larger portion to debt repayment or savings.

How to implement this rule effectively?

There are some simple steps to implement this rule effectively:

  1. start with calculating your after-tax income (the amount you receive in your bank account after taxes). Write it down on a paper or spreadsheet (MS Excel or Google Sheets).
  2. Calculate your needs. Deduct it from your salary and write it down.
  3. Divide your needs by your net income and multiply by 100 to get the percentage estimate of your needs.
  4. After you discovered your personal needs percentage, apply 5% more for future unexpected cases and open the “Wants” category.
  5. Write down your next 3-6 months wants – any personal preferences you are planning and their costs.
  6. Calculate your wants. Deduct it from your net salary (the after-tax one) and write it down.
  7. Divide your wants by your net income and multiply by 100 to get the percentage estimate of your wants.
  8. Now you have both needs and wants salary percentage share. The final share is your savings.

The next step is taking action and opening a savings account. If you already have one – Well done! It’s about being consistent.

Find more information about the adjustable percentage savings model:

  • The book “The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness” by Dave Ramsey.

Purchase on Amazon

Purchase on Barnes & Noble.

  • The book “Rich Dad Poor Dad” by Robert T. Kiyosaki.

Purchase on Amazon

Purchase on Barnes & Noble.

  • The book “Your Money or Your Life” by Vicki Robin, Joe Dominguez, and Mr. Money Mustache.

Purchase on Amazon

Purchase on Barnes & Noble.

  • The book “The Millionaire Next Door: The Surprising Secrets of America’s Rich” by Thomas J. Stanley Ph.D., William D. Danko Ph.D

Purchase on Amazon

Purchase on Barnes & Noble.

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