financial independence
Nowadays, many people get good salaries, yet by the end of the month their pockets become almost empty. The main reason for this is spending without thinking and postponing future needs. The truth is that our desires never end, but by doing a little planning, we can save better without making major changes in our lifestyle. This is the reason why the 50-30-20 rule is becoming increasingly popular among people these days. This rule tells how much of the monthly earnings should go to needs, how much to desires and how much to savings.
What is the 50-30-20 rule?
- 50% of the money goes towards essential expenses like rent, ration, electricity bill, school fees and medicines.
- 30% of the money is spent on lifestyle expenses like eating out, shopping, travelling, OTT subscription etc.
- 20% of the money is invested in savings and investments, so that future needs can be met without tension.
- This formula works for every income group. Whether your salary is Rs 30,000 or Rs 1.5 lakh, this rule helps you set a budget every month.
Increase the share of savings if you get increment.
According to experts, this rule becomes more effective when your salary increases. At such times, instead of increasing lifestyle expenses, it is very beneficial to add more money to savings. This not only strengthens the emergency fund, but also provides good growth in SIP, retirement fund and other investments. If your needs are the same as before, investing a large portion of the increased income directly can yield huge sums in the future. For example, even an additional savings of just Rs 1,500 every month can yield huge benefits in the long run through compounding.
Strong foundation of financial independence
The 50-30-20 rule is considered the first step towards economic freedom. In countries like India, rent, EMIs and family expenses can sometimes exceed 50% of the budget, but this rule still serves as a strong guide. This reminds you that lifestyle expenses should not exceed needs. This rule brings discipline in your financial life. You may not be able to follow it perfectly every month, but it helps you understand where your money is going and how much you can save. This habit is the biggest key to building wealth in the long run.