What the 50/30/20 budgeting rule means – Forbes Advisor INDIA

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With inflation and the cost of living constantly rising, having enough savings and controlling your spending becomes extremely important. The best way to get started is to define a budgeting rule.

A budgeting ruler gives a good idea of ​​where your salary is going. Having an idea about it also allows you to reduce all your superfluous and unnecessary expenses. Once you visualize the inflows and outflows of your funds, then you can begin to make a concerted effort to say goodbye to all those expensive and unexpected fancy restaurants and online purchases. In the process, you will end up saving a lot more.

What is the 50/30/20 budget rule?

The 50/30/20 budgeting rule is one of the best-known ways to start a solid financial management journey. It doesn’t matter how much you earn. You can easily apply this rule and develop the much-needed financial discipline. Here’s how you can start:

First, write down your total winnings. Whether it’s your full-time jobs, freelance gigs, or short-term projects, include them all. Suppose it comes down to INR 50,000.

Then split that amount into three buckets of 50, 30, and 20.

50% Is Your Needs

This amounts to INR 25,000. You can fund all essential payments through this piece. You must pay your rent, electricity and other utility bills. These are imperative expenses intrinsic to your survival. Therefore, they cannot be delayed at any cost.

In addition, you must also pay off all your loan payments, the minimum amount (at least) due on credit cards, and insurance premiums with this segment. Solidifying your financial health is important and, in fact, non-negotiable.

Therefore, make sure you put enough money aside at the start to save yourself the guilt of not saving and investing enough! The idea is to pay off immediate and urgent obligations that will only accrue next month and cause a financial nightmare. Loan defaults can seriously hurt your credit score. Not to mention that the total amount to be paid can quickly spiral out of control, thanks to soaring interest.

PS There is a world of difference between a need and a want. And in our irresistible urge to get our hands on that phone or that game, we often blur the lines. So don’t try to pass this on dune collection like a need just because you like it. To distinguish between a need and a want, the underlying question to ask is: Can you survive 10 days without it? If you can, the satisfaction of buying it can be delayed.

Most of us veil our Amazon and Nykaa shopping carts as a need and buy recklessly. One way to start budgeting and controlling impulse buying is to wait. Try waiting three days before clicking “Checkout” on your shopping cart. Chances are you don’t even remember it. And if desired, the time that will pass will eliminate all unnecessary elements.

30% Constitute Your Desires

So around INR 15,000. Leave your hair here! All of your shopping, book collections, hobby classes, and solo travels can come to life here. Think of it as your “fun fund”. The purpose of this fund is not just to survive but to thrive.

Since our desires never end and always arise, it is essential to cap them at some point. This could mean that you find your Want fund seriously insufficient. The temptation to dip into your savings to fund all those immediate desires will be super strong. But abstain.

Retail therapy is real but should not be used for convenience. Your hard-earned money should give you a rewarding experience. Reckless shopping is an instant gateway to regret. Be discerning in how you buy and select. This will help you get only the items you really need.

If you’re looking to make an expensive purchase, like an I-phone, break it down. Don’t waste an entire month of your fund on a single purchase. Instead, regularly set aside a separate, smaller fund dedicated exclusively to this cause.

20% is a saving

INR 10,000—This amount should be spent on your savings and investments. We are living in a pandemic at a time of expensive health care and career uncertainty. A visit to the hospital can drain you of all your funds. Therefore, you must have enough reserve to get through such periods. Undoubtedly, this is your most essential financial bucket.

Ideally, you should have an emergency fund to cover all urgent and unforeseen expenses. This should be half a year of your average monthly expenses. But don’t forget that saving is not enough since inflation regularly eats away at the purchasing power of our money. What is valued at INR 100 today will cost INR 150 tomorrow. Long-term, goal-based financial planning should be your focus for financing all of your life’s milestones.

For that, investing in anti-inflation avenues should be your top priority. With age on your side, you can consult with a financial advisor and work out an investment basket that provides the optimal asset allocation to meet your short- and long-term financial goals.

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