15 Minutes to Financial Peace

Take the 50/30/20 Rule and evaluate your progress on the path to financial freedom.

TheDailyFloss- 0615-Cain-Watters12238-1-Tom-Sanders
Tom Sanders CPA became a partner of Cain Watters & Associates LLC in 2008.

There is a simple ratio used in our financial consults called the 50/30/20 Rule. Understanding this ratio can allow you to self-diagnose your financial health in less than 15 minutes, telling you if you’re on the path to financial freedom.

This is a tool that is used daily to evaluate, track and hold Cain Watters & Associates LLC clients accountable towards their wealth accumulation goals. Simply stated, the 50/30/20 Rule evaluates the three main categories of where your money goes.  Each of the three numbers are a percentage of your total net income.

  • 50 percent: represents the amount of your lifestyle spending and debt payments
  • 30 percent: represents the amount you pay in taxes including federal, state and payroll taxes
  • 20 percent: represents your savings, including retirement savings as well as personal and college savingsImage of the 50/30/20 Rule Chart in Pie Chart form.

Think about it

Too often people make the mistake of starting an exercise like this by focusing on the largest piece first: personal spending and debt payments.

It is a mistake to start with the 50% category first because it is the most difficult category to define and track accurately.  How many times have you started or revised a personal budget?  Do you like tracking your monthly spending?  Most people do not. For this exercise, you won’t have to either – there is a better way…

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Tom Sanders CPA became a partner of Cain Watters & Associates LLC in 2008. He is a Certified Public Accountant and an Investment Advisor Representative. He also holds memberships with of the American Institute of Certified Public Accountants, the Texas Society of CPAs and the Dallas Society of CPAs.

Cain Watters & Associates LLC is an investment advisor registered with the Securities & Exchange Commission. Information provided does not take into account individual financial circumstances and should not be considered investment advice to the reader. Request form ADV Part 2A for a complete description of CWA’s financial planning and investment advisory services. There is no assurance that other client actual results will be similar to information presented. Estimated future results may not be obtained due to economic, business and personal circumstances.

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