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One of the biggest problems for employers is when will the salary be received or accounted for. Then you will have to wait for the salary to come. Many people are not able to invest due to not being able to save money. Then the need is to make a special budget of salary every month and spend it accordingly. You can use the 50-30-20 rule to create a monthly budget. This will improve your financial planning.
What is the 50-30-20 rule?
The 50-30-20 rule was introduced by Elizabeth Warren, a member of the US Senate and one of Time magazine's 100 most influential people. He and his daughter wrote about it in their 2006 book, All Your Worth: The Ultimate Lifetime Money Plan. Under which he divided his salary into three parts. Need, love and saving. According to Elizabeth Warren, we should spend 50 percent of our income on things we need and cannot live without. Which may include household ration, rent, utility bills, children's education, EMI and health insurance etc.
Understand the second part of the rule also
The second part of the rule is 30 percent. Which we should spend as per our wish. Such expenses are those expenses which can be avoided. But spending this money makes people happy. This may include watching movies, going to parlor, shopping, eating out, fulfilling one's hobbies, etc.
third and last part
The third and last part of this rule is 20 percent which is for savings. This money should be used for retirement planning, children's higher education, children's marriage, emergency fund etc.
Let us understand with an example
That your salary is Rs 50,000 per month. According to the 50-30-20 rule, you should spend 50 percent i.e. 25 thousand rupees on household needs. In this you can include necessary expenses like house rent, ration, electricity water bill, children's fees, car petrol etc.
Take the second part like this
You can spend the second part of salary i.e. 30 percent i.e. Rs 15000 as per your wish. This may include travelling, watching movies, shopping for clothes, buying gadgets like mobile or TV etc.
You can use the last part like this
After doing all this, you can save 20 percent of your salary i.e. 10 thousand. You should invest this money in savings. You can invest that money in different ways as per your convenience. Can do FD. You can invest in NPS for retirement. You can invest money in PPF for long term. Or you can do SIP in mutual funds. The best investment option is to invest little by little in many places.
