The 503020 rule: Simple budgeting guide for women

Prof Ngángá Gachara, Founder and Managin Partner, Strategic Fluent Analytica Limited [Photo: Courtesy]

Navigating personal finances can be complex, especially with varying income and life circumstances. For women, balancing present needs with future goals requires a strategic approach. To demystify budgeting and offer practical guidance, Anjellah Owino spoke with Prof Ngángá Gachara, founder and managing partner of Strategic Fluent Analytica Limited. He shares insights on how women can effectively manage their income and achieve financial empowerment.

Can you explain the 50/30/20 rule for budgeting in simple terms?

The 50/30/20 rule is about allocating income to meet needs. 50 per cent goes towards basic needs like shelter, food, clothing, and medical expenses. The 30 per cent is set aside for savings, investments, and precautionary expenses. This is for futuristic goals. The 20 per cent is for your wants to make your life enjoyable.

Why would you recommend it?

Life needs to be holistic. People can choose to spend their money as they wish, but the 50/30/20 rule is for those who want to lead a holistic life.

How do you recommend adapting the rule if someone’s income or expenses fluctuate every month?

The rule is only applicable to someone with a constant flow of income. If not, a woman needs to apply other budget principles like the 70/30 rule, according to her income. She should always make sure that 30 percent goes towards savings, emergencies, and investments and that expenses are as low as possible. When there is fluctuating income, there is uncertainty, and it is, therefore, prudent to increase the margin of what is allocated for precautionary costs.

What are some of the common mistakes women make when following the 50/30/20 rule?

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The mistake is women living beyond their means. Women need to constrain their budget to avoid borrowing money, as this is only consumptive debt. On the same note, women need to live with a budget instead of spending money without any allocation.

How flexible is the allocation rule? Should people adjust the percentages based on their specific financial goals or circumstances?

Women may want to go back to school, go on holiday, receive medical attention, have parental responsibilities, and so on. The flexibility of this rule is informed by life situations, income, expenditure and age.

What role does saving for the future or an emergency fund play in this budgeting rule?

It is about the picture you have painted of the life you want and saving as much as you can for it. Remember that life is more important in the future than it is today.

What unique financial challenges do women face when it comes to budgeting?

Firstly, income levels fluctuate as their expenditure broadens. They also have a wide range of costly beauty and hair products, and they are prone to impulse buying.

How can women ensure they are saving for long-term goals like retirement while managing short-term expenses?

Other than adjusting their expenses, I highly recommend that women seek a circle of mentors who have walked this path before. Financial management needs guidance.

How can women approach budgeting as a way to increase financial empowerment?

How I define financial independence is that one is not working for money. It means women can meet daily expenses despite what is happening. While I advocate for the 50/30/20 rule, I’d ask women to live within the 50 per cent with both their wants and needs, as they save and invest in the other 50 per cent.

More women also need to join saving schemes like investment banks, saccos of good standing, insurance, money market funds, and government bonds. They will be able to access loan facilities with affordable interest rates.

How can women meet their financial goals when going through life changes like maternity and divorce, especially for self-employed people?

Leverage passive investments like those from saccos, and they can live comfortably. With saccos, you will collect your dividends at the end of the financial year. For instance, for artists, someone has to set aside a greater percentage of their income for savings.