Manage Your Money By Using Rule of 50-30-20: It is not always easy to balance your income, expenses and saving for the future. For this, proper financial planning has to be done. Although this work is important for everyone, but sometimes it is not easy to implement. In such50-30-20 rule There is an easy and effective method, which helps you in managing your money better i.e. budgeting. This rule tells how you can create a better balance between spending, saving and investing by dividing your income into three parts. This rule not only takes care of your daily needs but also takes care of your long term financial stability.
What is the 50-30-20 rule?
50-30-20 rule is yoursincome after tax deduction It mainly tells the way to manage it by dividing it into three parts. These three parts are:
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For 50% needs: This includes very important things like rent, ration, electricity, water, transport, and health insurance.
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For 30% wishes: This includes spending on non-essential but indulgent indulgences like entertainment, eating out, shopping, or holidays.
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20% for investment-savings and loan repayment: This includes emergency funds, investments, retirement savings, and loan repayment.
With the help of this rule, you can ensure that your spending habits do not come in the way of meeting your priorities and financial goals.
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How to apply the 50-30-20 rule?
1. Start by dividing your income into three parts
First of all, divide your post-tax monthly income into three parts. For example, if your monthly incomeRs 50,000 If so, then under this rule you will have to divide this amount in this way:
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Rs 25,000 (50%) For needs.
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Rs 15,000 (30%) For wishes.
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Rs 10,000 (20%) For savings and loan repayment.
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2. Divide expenses into three categories
After this, you will have to make a list of all your monthly expenses and divide them into needs, desires, savings and debt repayment. For instance:
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Needs: Rent, ration, utilities i.e. electricity, telephone bills, transport.
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Wishes: Eating out, streaming subscriptions, shopping.
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Savings and loan repayment: Emergency Fund, Investments, Retirement Savings, Home Loan.
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3. Balance expenses
If the expenditure on your desires is more than 30%, then try to reduce it and focus on saving. For example, in expensive cities the expenditure on necessities can be more than 50%. In such a situation, reduce the expenditure on desires and give priority to saving. In this way, this rule will help you to set your priorities correctly.
4. Set up automated savings
Use automated fund transfers from your salary account to prioritize your savings and loan repayments. This will help you spend and save in a disciplined manner as per the decided budget.
5. Review regularly
Review your budget from time to time and make changes in it as per your needs. As your income increases, keep increasing the amount of savings.
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What are the benefits of adopting 50-30-20 rule?
This rule is easy to understand and apply. If you follow this and keep investing 20% of your income in savings, you will be able to create a good corpus in the long run. This rule fulfills both needs and desires in a balanced manner. Apart from this, the arrangement of including loan repayment in the investment-savings category can help you get rid of debt quickly. If you want to create a larger corpus through savings and your income allows it, then you can increase the savings portion from 20% to 30% or even more.
Overall, the 50-30-20 rule is a practical and simple way to improve your financial health. This rule helps you improve your financial management by striking the right balance between needs, desires, and savings. By adopting this, you can not only reduce your financial tension but can also easily achieve your long term financial targets.
