Money is essential to support a family; nothing functions without it. However, to earn money, one must work. Suppose you earn a reasonable monthly amount to cover your family’s expenses.
A portion of that money should be allocated for leisure activities. You can use part of your earnings for things like watching movies, going for walks, shopping, taking holiday trips, or eating at restaurants.
At the same time, household expenses should be covered, while another portion of savings should be set aside.
The art of enjoying life while saving for the future becomes much simpler when you understand the “50-30-20” rule. With this rule, you can enjoy today without worrying about tomorrow.
So, what is the “50-30-20” rule? It divides your income into three parts, allowing you to manage your finances efficiently.
Are you currently employed and spending your entire salary without knowing how much to save? It’s time to focus on savings and investments.
You may be wondering how. By following the 50/30/20 rule, you can save significant money. Let’s break it down.
The rule suggests allocating your income as follows:
- 50% for household expenses like groceries, clothing, and rent.
- 30% for personal hobbies or non-essential expenses.
- 20% for savings and investments.
Adhering to the 50/30/20 rule will help you manage your money and prepare for a financially secure future.
Let’s consider an example. If you earn Rs.60000 every month, apply the 50-30-20 rule as follows:
- 50% of Rs. 60,000 is Rs. 30,000, to be used for household expenses.
- 30% totals Rs. 18,000, which can be allocated for personal hobbies and non-essential expenses.
- 20% amounts to Rs. 12,000, which must be saved without fail.
This allocation amounts to Rs. 48,000, leaving you with Rs. 12,000 to save monthly.
When it comes to investing your savings, please keep it simple. Consider dividing your funds and starting a systematic investment plan (SIP).
This can potentially lead to substantial long-term returns. For instance, you could see a significant accumulation over time by investing a portion of your savings in a monthly SIP with an average return of 12 percent.
The remaining Rs. 6,000 can be directed towards a short-term SIP or another guaranteed return scheme. If needed, seek advice from financial experts to make informed investment decisions.
When applying the 50-30-20 rule, it’s essential to differentiate between “needs” and “wants. ” Mistaking wants for needs can derail a life’s cycle.