How to Use Installment Loans and the 50/30/20 Rule

Installment loans help people get on budget

Installment loans are short-term loans that have proved convenient to a wide variety of qualified customers. The great thing about these types of loans is that they can provide a temporary plug in an overextended budget. They are easy to apply for, and if you qualify, the money is available in your account quickly, sometimes in as little as two hours. A lot of people are using these loans to find extra cash to gain control over their finances.

The 50/30/20 Rule

The basic rule of thumb with the 50/30/20 guideline is to carefully portion out your income to three areas.

  1. Needs
  2. Wants
  3. Savings

Needs include things such as mortgage, utilities, insurance and child care. These are the things that you can’t cut out of your budget. You still should spend some time analyzing these to see if you can find some savings, but overall this should be pretty tight.

The allocation for needs is 50 percent of your income. Your wants are the things that you could potentially cut out of your budget if need be. During this year’s recession, this is where most people shaved down drastically to get by. Your wants should make up 30 percent of your overall income. Finally, savings are what you are stocking away for your future. This should add up to 20 percent of your income, but may have to be more if you’re in the older age bracket and haven’t reached your financial savings goals yet.

Getting to the 50/30/20 Rule

To  use the 50/30/20 rule, first you want to analyze your income. This is going to include everything from your paycheck, alimony and second job income to interest, tips and assistance. Include your spouse’s information to get the overall income coming into your household.

Next, find out what your needs are. This is the tricky part; a lot of people aren’t as detailed with as they need to be. The best thing to do is get a notebook and for one month write down every expense that goes out. That includes everything from a morning coffee and a tank of gas, to a new shirt and a gift card. Once you have your list of everyday purchases, sort them out into either “needs” or “wants.” Then, calculate your monthly expenses like rent or mortgage, taxes, insurance, car payments, parking costs, repairs, child care, utilities, groceries, credit card payments, union dues and tuition. Add these up to find your total needs for the month.

The next step is to calculate your wants. During the recession, this is where people used savings, installment loans and family assistance to get by. This includes the things you wrote down in your notebook earlier that fell into the category of “wants.” Things like dining, entertainment, gym memberships, internet, personal care, lessons, subscriptions, household items and gifts fall into this category.

Finally, calculate your total savings per month. In this category you want to include your 401(k), IRA contributions, emergency fund, college savings, extra mortgage payment, and any additional savings.

Putting the rule to work for you

As the rule states, you should be spending 50 percent on your needs, 30 percent on your wants and 20 percent on your savings. Take a look at how your budget looks and move things around if needed. For example, if you found that your wants are at 50 percent, but your savings are only 10 percent, then you need to alter your spending. You already have everything you spend in your notebook, so finding the culprits in your budget misalignment should be relatively easy. The installment loans you qualify for can help you get on track with your budget. They are a simple way to balance out the 50/30/20 Rule and make it work for you.

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