Often I come across this question, is there any rule to follow on budgeting ?. There are no such magic rules to follow, the good you manage with money the better is your rule is. If you don’t have any specific rule or you don’t know where to start, then you can follow this simple rule of 50-30-20.
50-30-20 was a simple rule popularized by US Senator Elizabeth Warren in her book called All Your Worth: The Ultimate Lifetime Money Plan. She gave a basic thumb rule on how to budget on your income ( After all the tax).
Basically she categorized the money to spend on your needs, save an emergency fund, and to invest.
The first 50% of your money is all for your basic needs like your house rent/EMI, food, your electricity bill, grocery bill, and you loan EMI and insurance. You should not include your gym subscription, your club, and your Netflix subscription to your basic needs. So the first 50% goes for your basic needs and survival. If you are spending more than 50% of your money on your survival. You should look into cutting down your expense and live frugally.
According to her book, this 30 % goes to spend on your want, like your shopping wish list and saving to buy that car you always want.
But I say you should put this money for your emergency fund. Emergency funds have become so important nowadays. Life has become unpredictable and you never know what comes next.
I advise you to put your 30% of your income to an emergency fund to survive at least 6 months. Once you have achieved your target on those funds, you can divert the 30% to spends on things you want or you can divert it close your debts.
The final 20% is what you save and invest. You can invest your 20% on dividend stocks, mutual funds, or on LIC,’s return investment plans. You can also save that 20% to start a business of your own or to buy a house of your dream.
Al these are general rules to give you an idea about how to budget your income. You can make few changes accordingly so that it won’t affect your comfort and peaceful living.
