Business News Desk, If you think of your salary as a pizza, then you are spending a part of it today to meet your essential expenses. Along with today, it is also important to save something for the future and take care of your essential expenses. Here we are telling you an easy way to divide your salary in the figure of 50-30-20. This can also free you from your daily essential expenses, hobbies and worries about the future. Not only this, you can also become a millionaire in the future. This rule will help in balancing India’s changing financial landscape and securing your life.
What is the 50-30-20 budget rule?
The 50-30-20 rule is a simple budget figure that divides your income into three parts so that you can use your income effectively.
50% of income – for essential expenses
30% income – for desires
20% income – for savings and investments
This rule was introduced by US Senator and professor Elizabeth Warren and her daughter Amelia Warren Tiggy in their 2005 book All Your Worth: The Ultimate Lifetime Money Plan. The aim of this rule was to provide a figure that is easy for everyone and which can be easily adopted by people with different incomes.
How to use the 50-30-20 rule?
1. 50% – on essential expenses
These are the expenses that meet your daily needs and which cannot be avoided. In India, these expenses can be something like this.
Home: Rent or home loan EMI (₹10,000 to ₹30,000, depending on the city)
Food: ₹4,000 to ₹10,000 per month for a small family
Utilities: Electricity, water, mobile, internet (₹2,000 to ₹5,000)
Transport: Public transport, car loan EMI, fuel expenses (₹3,000 to ₹10,000)
Health: Monthly health insurance or medical expenses (₹1,000 to ₹3,000)
For example, if your monthly income is ₹50,000, then 50% i.e. ₹25,000 will go on these essential expenses.
2. 30% – spend on desires
Wants are expenses that aren’t necessary, but make your life better.
Eating out: ₹2,000 to ₹5,000 per month
Travel & Leisure: Holidays, Weekend Trips (₹5,000 to ₹10,000)
Entertainment: Movies, streaming subscriptions (₹500 to ₹2,000)
Shopping: Clothes, gadgets, lifestyle expenses (₹2,000 to ₹5,000)
If your monthly income is ₹50,000, then 30% i.e. ₹15,000 will be for your wish expenses.
3. 20% – on savings and investments
This part is about securing your future:
Savings: Deposits in an emergency fund or savings account
Investments: Mutual funds, stocks, fixed deposits etc.
Loans: Pre-payment of loan or credit card bills
If your monthly income is ₹50,000, then 20% i.e. ₹10,000 should be for your savings and investment:
Emergency Fund: ₹2,000
Investment: ₹5,000 in mutual funds or stocks
For example, Ravi lives in Gurugram and earns ₹60,000 per month. For him, the 50-30-20 rule could be like this:
Necessary Expenses (₹30,000):
Rent: ₹15,000
Food and utilities: ₹10,000
Transport: ₹3,000
Health care: ₹2,000
Wishes (₹18,000):
Dining out and entertainment: ₹6,000
Travel: ₹7,000
Purchase amount: ₹5,000
Savings and Investments (₹12,000):
Mutual Fund/RD/FD/Gold: ₹5,000
Emergency savings: ₹3,000
Loan prepayment or SIP: ₹4,000
In this way, Ravi can fulfill his needs, enjoy his desires and also prepare for the future by following the 50-30-20 rule.
Precautions for the 50-30-20 Rule
Although the 50-30-20 rule is a simple and effective budgeting method, it has some limitations. It may not be as effective for people with low incomes whose essential expenses account for more than 50% of their income. People with higher incomes can save more. Also, this rule does not directly target personal goals such as paying off debt or saving for big expenses. Therefore, it should be adopted flexibly according to your situation.