50-30-20 Rule: Effective Way to Manage Money
In this blog, we are here to discuss ‘How to master your money and build your wealth”. We will discuss how to manage your money with 50-30-20 rule. Talking about 50-30-20 rule of financial planning,
Let’s assume I am earning Rs.100 per month. In this case, I should dedicate 50% of my salary towards the ‘needs’ i.e. groceries, housing, insurance, utilities, debt, etc.
The next 30% will go towards your “wants” i.e. frequent shopping, dining out, hobbies etc.
Related Post: Healthy Financial Habits
Keeping wants and needs at a bay is difficult but is absolute necessary. Because, I need to know the items without which I cannot live and the things which can be avoided.
Let’s say my hobby is painting, but half of my paint dries up being in bottles, because I use them too often. Then, I need to understand that I am not using money efficiently and I should reduce the number of shades I buy. This will help me reduce my expenses.
The differentiation between ‘needs’ and ‘wants’ will help me identify the expenses which I can cut down and help me move towards making wealth while keeping me out of debt.
The last 20% of the income should go to ‘savings’ i.e. emergency funds, retirement plan, term insurance plans, etc. The early you start money management the better will be your future.
If you confuse why I need to do retirement planning, Then you should read our blog in which we discuss regarding Importance of Retirement Planning.
It is difficult to differentiate between them and to make a plan unless the expenses are documented. This initial differentiation will help me understand some requirements like emergency funds.
According to an article, an emergency fund should be able to cover my expenses for 3-6 months, whereas people with lower job security are recommended to save 6-12 months salary. This fund might look like a lot but, it will keep you afloat at the time of need when nothing will be there to support you.
On the other hand ensuring that your investments are good and in safe policies which will give you high return with minimal risk requires a lot of research, the research can be done online or if you would like to partner with some entity for asset management, retirement plans or term plans in that case you can connect with investment advisor in Delhi like Aegeus Financial Services.
