Skip to main content

What Is the 50/20/30 Budget Rule?

What Is the 50/20/30 Budget Rule?

The 50/30/20 budgeting rule – also referred to as the 50/20/30 budgeting rule – divides after-tax income into three different buckets:

  • Essentials (50%)
  • Wants (30%)
  • Savings (20%)

503020 rule


Essentials: 50% of your income.

Your essential expenses are those you would almost certainly have to pay, regardless of where you lived, where you worked, or what your future plans happen to include. In general, these expenses are nearly the same for everyone and include: Housing, Food, Transportation costs and  Utility bills.

Wants: 30% of your income.

The second category, and the one that can make the most difference in your budget, is unnecessary expenses that enhance your lifestyle. Some financial experts consider this category completely discretionary, but in modern society, many of these so-called luxuries have taken on more of a mandatory status. It all depends on what you want out of life and what you are willing to sacrifice. 

The fewer costs you have in this category, the more progress you’ll make paying down debt and securing your future.

Savings: 20% of your income.

The next step is to dedicate 20% of your take-home pay toward savings. This includes savings plans, retirement accounts, debt payments and rainy-day funds

Summary:

This budget rule is a simple method that can help you reach your financial goals.

Saving is difficult, and life often throws unexpected expenses at us. By following the 50-20-30 rule, individuals have a plan with how they should manage their after-tax income. 

If they find that their expenditures on wants are more than 20%, they can find ways to reduce those expenses that will help direct funds to more important areas such as emergency money and retirement.

Life should be enjoyed, and it is not recommended to live like a Spartan, but having a plan and sticking to it will allow you to cover your expenses, save for retirement, all at the same time doing the activities that make you happy. 

Labels:

Popular posts from this blog

Historical Sensex Returns Updated - 2024

Historically Sensex has given returns of about 15% per year, despite volatility and price fluctuations of about -20% to +60%. The following table shows S&P BSE Sensex historical data - start  & close values and the yearly returns of the sensex from 2000 to 2024. So far during the year the   index has hit an all-time high of  75,124   and despite markets hitting all time highs not all stocks make all-time highs. There are many stocks still below their highs. Stocks like HDFC Bank, ITC, Asian paints are still well below their highs and some of them have given low returns over last 3-5 years. Individual or Retail investors can achieve consistent returns through investing via mutual funds , whether it be active or passive. Chasing returns from individual stocks is futile. Be a wise investor !
Read more

Mutual Funds - How to modify KYC or do rekyc?

Last year SEBI issued a circular effective April 1, 2024 regarding KYC norms for the securities market. This has created a lot of confusion among investors and intermediaries, whether who has to do rekyc and who need not? First check your KYC status from CVL KRA . If the 2nd column says KYC VALIDATED, then you are good to go - no action required. You can invest and redeem all the funds. If it says registered, you can invest in existing Fund houses. You have do rekyc to invest in new fund houses/ schemes. If it is on hold, you have to do rekyc.  You can do rekyc completely online from the AMC's websites, links of which are given below: Bandhan Mutual Fund - Bandhan Canara Robeco Mutual Fund - Canararobeco DSP AMC - Dsp Franklin Templeton Asset Management Franklintempletonindia HDFC Mutual Fund Hdfc ICICI Prudential Mutual Fund Icicipruamc Kotak Mahindra Mutual Fund  Kotak SBI Mutual Fund  Sbi Investors having KYC status of  'Registered' or 'On Hold' can complete thei...
Read more