50/30/20 Rule of Thumb for Realistic Budgeting Explained with Examples
Recently the question of "whose text makes you happy" was going viral on social media. Many people responded sarcastically that it was the news of 'Salary Credited' or 'Paycheck Received'.
Such salary will disappear in the next few days due to today's price hike. By budgeting your salary into 50:30:20 ratio, we can keep our expenses under control and save for the future. This time is for those who have no debt. Those who have debt should first find ways to pay it off quickly.
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50/30/20 Rule of Thumb for Realistic Budgeting |
This 50:30:20 budgeting system is very popular among money conscious people. By this method, one can manage his income successfully and easily.
So, what is the 50:30:20 budget rule ratio, it's simple. We should divide our income into 3 categories. This ratio is how much money should be allocated to which of the three categories.
50% of salary should be allocated for basic needs and maximum of 30% of salary can be allocated for desired buying options. 20% of salary can be earmarked for savings or future projects.
50% for Essentials (Requirements)
Unavoidable expenses come in essentials. We should allocate 50 percent of our income for these needs. If you are getting a salary of 50 thousand rupees,
you should have house rent, grocery, food, electricity bill, mobile bill, petrol, transportation, bike maintenance, health insurance, debt/ loan payments within ₹ 25,000 per month. Calculate the current cost of your basic needs.
If they are more than 50 percent of your salary, you are spending lavishly. Cut costs wherever you can as that will be good for your future.
30% for Wants (Desires)
Desires help make life more enjoyable and engaging. We can see spend some money on it. You can spend up to 30% of your salary on them.
You can spend up to 30% of your salary on travel, cinema, buying your favorite clothes, sporting goods, smartphones, smart TVs, etc.
These are all plannable expenses so you can get savings every month. If the salary is ₹ 30 thousand, you can allocate up to ₹ 15,000 per month for these.
20% for Savings (Investments for future)
As soon as the salary reaches the bank account, the first thing to do is to save 20% of the salary of ₹ 50,000 and save ₹ 10,000.
Then consider the above 2 costs. Many people may wonder if they can continue to save by starting a private, non-permanent job savings.
If you count like that, not a single rupee will last till the end. RDs, mutual funds etc. have the facility to start and stop saving anytime. So set a goal and keep saving consistently.
Always keep 6-9 months’ worth of monthly expenses in advance as an emergency fund in a bank deposit or Liquid Funds. If your household expenses are ₹ 20,000 rupees per month,
it is better to have ₹ 120,000 in hand (FD, Liquid Funds). Even if not now, keep creating it in the future. Even humans sometimes do not give trust like money that can give hope to your life.
As a final verdict, it is better to increase your savings 30%-40% for future by reducing essentials or wants spending to achieve financial freedom sooner than you think to retire. Hence revised 40/20/30 or 40/15/35 or 35/15/40 or 40/20/40 rule of thumb of budgeting would bring you more fortune and become rich faster. SO BE IT.
