50-30-20 Rule of Budgeting

 50/30/20 rule of budgeting

It is such a cliché, we get educated so much, work hard in life so much to have a decent living or to simply put ‘earn well’, but once we start earning, we don’t know what to do with it.

Most of us think, finance is a pretty heavy topic, something we would not understand much about, but to manage our own personal finance, we just need to know some basic things about personal finance, and that is it!

I know, at times when you have a sizable expense, it keeps you wondering, whether you have over spent on the item or was it ok, or when you take a loan, you wonder whether you have over borrowed or no.

With this article, you would know a simple and a really handy rule to track your budget, which we call the 50/30/20 rule.

It would help you know, whether you have borrowed well enough in your capacity to pay back, at the same time save enough for your goals and manage your day to day expenses too.

So, here it goes, as per the representation above, all your expenses like utility bills (grocery bill, electricity bill, phone bill, etc.), expenditure on fuel, entertainment, education, outside food, etc. and rent or Home loan EMI should not cross 50% of your take home salary.

You should allocate 20% of your take home pay i.e. salary after paying taxes, to your short term goals (goals within 3 years) like buying a car, going on vacation, buying any electronic item, putting together an emergency fund for sudden medical expense, for sudden job loss situation, etc.

And you should be able to save and invest 30% of your take home pay for your long term goals (goals beyond 3 years) like kids’ higher education, their marriage, your retirement, etc.

Now, check your own take home salary and check whether fixed expenses and floating expenses are well within above limits or no. And, if no is the answer, you need to put it right and save at least 30% of your take home salary henceforth.

So, with this handy rule, budget well. Stop worrying about money and start loving your budget. After that, I am sure you would save well. Meet you in the next article. Until then happy budgeting!