What is the 50-30-20 rule of budgeting you should know about? | The Financial Express

What is the 50-30-20 rule of budgeting you should know about?

Along with essentials, one needs to ensure that one has some extra money for important but non-essential goods and also for investments a secured future as well.

What is the 50-30-20 rule of budgeting you should know about?
The primary motive of earning is to ensure that one gets money to buy essentials to ensure one's survival as well as that of one's family.

The primary motive of earning is to ensure that one gets money to buy essentials to ensure one’s survival as well as that of one’s family. However, along with essentials, one needs to ensure that one has some extra money for important but non-essential goods and services, and also for investments to ensure maintenance of the standard of living in the future as well.

So, one should make a budget and split one’s regular income in three parts – for essentials or needs, non-essentials or wants and savings for future sustenance or to pay off debts taken to buy assets in advance.

“Budgeting methods can help you feel secure and help you maintain discipline while managing your money. They aid in achieving your financial goals and attain financial freedom in the long run. And the 50-30-20 rule is a popular one advised by experts for many years where one can divide their income into three different parts to spend money efficiently,” said Anil Pinapala, CEO & Founder of Vivifi India Finance.

“Accordingly, 50 per cent of your monthly income is used for essentials and basic needs to get by the month, 30 per cent on indulgence and wants that may include restaurant visits, excursions, etc, while 20 per cent gets stashed away for savings or to pay the debt. Savings is an important part of an individual’s earnings as they can be utilised to fund their retirement days in comfort, for emergencies that are unforeseen and to use it for expenses during old age,” he added.

However, the more you are able to save, the merrier will be your future years.

“While this rule is straightforward and works well in most case scenarios, you must consider the constantly changing lifestyles and money goals of people in the current times, where the priorities and ratios may vary to best suit the times you live in, and help you achieve the ultimate financial freedom,” said Pinapala.

Expressing his view on the 50-30-20 rule, Vikas Garg, Co-founder & CEO, Paytail, said, “A regular income begets a strategy that lets you sustain yourself, while seeking the quality of life you desire without having to live paycheque-to-paycheque every month.”

“In an ideal situation, it is recommended that an individual uses their income in the 50-30-20 split, that is, 50 per cent of their income is distributed and used for necessary, unavoidable expenditures such as loan repayments, rent, food, electricity bill payments and others, while using up 30 per cent to purchase goods and services that may be important but are not necessary, and save the rest of the 20 per cent which allows the individual a liquid corpus available for emergencies or larger purchases in the future. This is an effective way to build on one’s savings while also having the liberty to enjoy and indulge in leisure,” he added.

Reiterating the need of savings for future survival and comfort, Garg said, “This method can be used by individuals to meet their short-term, mid-term and long-term investment goals and plans. It isn’t a hard and fast rule, and a person can choose to save a larger portion of their income if circumstances allow them, creating financial security for the future.”

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