look news india
Personal Finance: The biggest worry of every employed person is that he waits for the salary for the whole month. But as soon as the salary comes, I don’t know where it goes. Many people’s money ends within five days. In such a situation, it is important to make a special budget for the monthly salary. Spending should be done accordingly. You can take help of 50-30-20 formula to make monthly budget. This will make your financial planning better.
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 this in their 2006 book, All Your Worth: The Ultimate Lifetime Money Plan. Under which he used to divide his salary into three parts. Need, want and savings.
spend 50 percent here
According to Elizabeth Warren, 50 percent of our income should be spent on things that are necessary for us and without which it is difficult to live. Which includes things like house ration, rent, utility bills, children’s education, EMI and health insurance.
Understand the second part according to the rules
The second part of this rule is 30 percent. Which should be spent for one’s desires. This is an avoidable expense. But spending on this makes people happy. Which includes watching movies, going to parlor, shopping, eating out, fulfilling one’s hobbies etc.
What is the third and last part?
Its third and last part is 20 percent, which should be kept for savings according to this rule. This money should be used for your retirement planning, children’s higher education, children’s marriage and emergency fund.
Understand this rule with an example.
Suppose your monthly earning is Rs 50 thousand. In such a situation, according to the 50-30-20 rule, you should spend 50 percent i.e. 25 thousand rupees on household needs. This will include essential expenses like your house rent, ration, electricity-water bill, children’s fees, car petrol.
Understand the other part too,
You can spend 30 percent of this i.e. Rs 15 thousand as per your wish. These desires include travelling, watching movies, purchasing clothes, mobile-TV or other gadgets etc.
Follow the last part like this
After doing all this, you will save 20 percent i.e. 10 thousand rupees. You should invest this money in savings. You can invest this money differently as per your convenience. You can do FD, invest in NPS for retirement, invest in PPF for long term or even do SIP in instruments like mutual funds. However, it is best to invest some money in multiple places.