Budgeting your money can be overwhelming and especially if you are new to it. You need to organise your income and expenses and also decide how to spend your cash. To manage your money easily, use a percentage-based budget that divides your after-tax income into different categories. An effective and common type of such a budget is the 50/30/20 rule.
In this rule, the basic idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. For example, keeping track of the market, one would see that the Bajaj Housing Finance share price fluctuates, and as of recent information it is trading around the 111-114 rupee range, so those looking to invest, would need to consider if that stock aligns with their investment strategy.
This blog will explain ways to manage your money using the 50/30/20 budget rule and if it’s right for you.
Budget rule 50% is for necessities
Your needs are usually the basic living expenses that you absolutely must pay and should account for 50% of your income. Necessities are not optional and they differ from your wants. If you are spending more than 50% on your needs, then consider cutting down on your wants.
Examples of needs include but aren’t limited to:
- Rent or mortgage payments
- Car payments
- Transportation costs
- Student loan payments
- Groceries
- Insurance and health care
- Minimum debt payments
- Utilities
Your necessities payments may change over time. For example, if you pay off your student loan, you’ll have some extra money in your necessities budget that you can use for other expenses. You could use it to make higher monthly payments on your home loan, mortgage, or another loan, for example, which could help you pay off your debts faster.
Budget rule 30% for wants
Your wants are the things that aren’t essential for survival. They are different from things you are saving for like going to a gym, expensive vacations, tickets for games, etc.
Examples of wants include:
- Dining out
- Spa treatments
- Designer clothing and designer accessories
- Club or gym memberships
- Tickets to sporting events
- Subscriptions to streaming services
- Vacations
- The latest electronic gadget, especially an upgrade over the fully functioning model you already have
Rewarding yourself for working hard is a great way to spend money on yourself for motivation which may improve your quality of life. Your wants may also change over time. Striking one goal and adding another can help you stay motivated to achieve your next goal.
Budget rule 20% is for Savings
20% of your income may be allocated to savings and investments in the 50/30/30 rule. One must have at least three months of emergency savings on hand for emergencies. Focus on retirement and meeting more distant financial goals after that. Examples of savings can include:
- Vacation
- New Vehicle
- Emergency savings account
- Down payment on a home
- Contributing to an investment account
You can automate your accounts for easier saving goals. The denominations can be worked out as per your convenience and funds available for your savings. Saving for emergency funds and long-term goals can be considered.
Conclusion
Budgeting can be challenging, especially when unexpected expenses arise. The 50-30-20 rule provides a simple framework for managing after-tax income effectively. With guidance from the best stock advisory, you can adjust your spending, cut unnecessary costs, and allocate funds to crucial areas like emergency savings and retirement.
While life is meant to be enjoyed, having a solid financial plan ensures you can cover expenses, save for the future, and still indulge in activities that bring you happiness.