50 - 30 - 20 Rule of Budgeting for Beginners

 



50 - 30 - 20 Rule of budgeting for financial planning 

In our society, everyone want to be rich but most of people cannot control their spending. Every person should be a budgeting plan that means, how do they manage their money which may for annual plan, quarter plan or monthly plan. A well budgeting Plan could help achieve your personal financial goals.

Budgeting and managing finance in your own hand. But before reaching a budget, it is mandatory to know monthly after tax income, monthly spending for living expenses, liabilities, rent etc. 

The easiest and smart budgeting rule is 50 - 30 - 20 which is simple budgeting method. This budget method tells us how much money do you need to keep in your savings and your daily expenses etc. This budget method also helps to avoid overspending and build up your wealth.


What is the 50/30/20 rule?

The 50/30/20 is an easiest budgeting technique which could help manage your money practically in simple and sustain way. The budget rule of thumb is to divide your monthly after tax income into three spending categories.

(a) 50% for needs

(b) 30% for wants

(c) 20% for savings

The rule helps to build your wealth steadily manner and track your financial goals.

Senator Elizabeth Warren popularized the '50/30/20 budget rule' (sometimes labelled '50 - 30 - 20') in her book. All your worth: The Ultimate Lifetime Money Plan. The basic rule is to divide up after tax income and allocate it to: spending 50% on needs, 30% on wants and rest 20% to savings.

Let's discuss three spending categories with an example.


50% for Needs:

Needs are those expenses that you have to pay to daily life for survival. These include rent, groceries, bills, transports, insurance premiums, minimum debt repayment etc. Needs are essential expenses that you can't ignore. 

Suppose, your father's monthly after tax income is Rs 50,000. So you can spend of Rs 25,000 per month. These expenses have to pay for survival that cannot skip. 


30% for Wants:

Wants are those expenses that not absolutely necessarily for living but may wants. These includes dinning out, gym membership, 
Traveling etc.

Using the same example as above, your father's monthly after tax income is Rs 50,000. So, you can spend of Rs 15,000 for your wants.

But you can decrease your wants for more savings in future. Such as buying a Suzuki car instead of BMW car. Similarly buying a Samsung phone instead of iPhone.


20% for Savings:

At last, the remaining 20% of your net income allocated for savings and investmen or also loan repayment. These includes putting money into emergency funds, mutual funds, stock market and savings accounts etc. So, consistently putting 20% in savings will meet your financial goals.

Using the same example as above, your father's monthly after tax income is Rs 50,000. So, you can put of Rs 10,000 in savings for financial goals. Savings is most important part of your income.

This rule helps you to achieve your financial goals in future and create more wealth for your own. Everyone apply the rule in her/him daily life.


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