Are you just stepping in the wonderful zone of life called ‘adulthood’? Just on the cusp of getting your own life together? Did dad just tell you ‘Beta next month se bijli ka bill tum de diya karna?’ Or was that you just taking on that responsibility because you got a new promotion? Whatever the case maybe you may need a budget or at least an outline to live with.
Introducing the 50/20/30 Rule:
Today we discuss the 50/20/30 rule. The rule essentially speaks to the minimalist lifestyle. However, if you are someone who believes in budgeting to handle their money, maybe a look at this division of money may do you good. Additionally, it is a great tool for people who just landed jobs and are finding it difficult to stop themselves from purchasing the world.
50% on Essentials:
Half of your income is set for the Essentials; housing, food, transportation, utility bills and any bills that are of a recurring nature each month. The idea is to maintain the percentage but managing the actual money spent. So if your monthly income was say, Rs. 70,000, you would be spending Rs. 35,000 on Essential items.
The priorities would depend on how you want to live. For some people lodging takes precedence while for others transportation is important. If you are living with your parents then there is a chance that you could be saving a huge sum.
20% on Savings:
These funds are for rainy days, retirement funds and savings plans. If your company is providing you with one then that’s great news. But if they aren’t then you may want to think about investing in an insurance plan or a retirement fund which you fill in. With an income of Rs. 70,000, a savings account would hold Rs. 14,000.
Most people feel the urge to use these funds when their Essentials quota runs out. Remember this is NOT a replacement for everyday spending.
30% on Personal:
This category is for the enhancement of your lifestyle. In our modern society we have luxuries that have taken on a mandatory status. Spending on them is completely discretionary and some can be adjusted to fit personal choices.
For a person earning Rs. 70,000 that would amount to Rs. 21,000. The expenditure in this category could also be a necessity like an expensive cell phone plan or a gym membership to keep healthy. This category also includes expenditure on clothing, make-up, dining-out and entertainment among other things.
The 50/20/30 budget is not a set rule but a framework. It can help you establish healthy spending habits. Try not to be too rigid when working with this rule. To have a minimalist spending routine figure out what your budget looks like and keep track of it. The idea is to work with chunks of figures to simplify things. Once you have a template of your spending routine simplify it into Essential, Saving and Personal to get a fair idea of what percentages you arrive at. Try to keep the percentages same each month.
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A fan of caffeine with an unbreakable excuse for beverage overdose. Armed with financial and technical knowledge, she writes a business/finance blog at financeitout.com. You can check out retirement advice and fresh financial and business news tweets at @financeitout.