The Buyt Desk
Finance management is a topic that eludes the sensibility of many. Are you earning a lot of money but unable to manage it? How will your life change if you had a simple equation for finance management? Here comes the 50/30/20 rule of managing finances. Use 50% of your earnings to buy essentials, 30% to buy things for your whims and fancies, and save or invest the remaining 20%. In this way, you cater to needs, desires, and future financial goals.
Let us dive into the details of the 50/30/20 rule
Essential Expenditure
You cannot survive basic amenities like food, house, transportation, electricity, and water. These common conveniences are unavoidable and will always form a major part of your spending. While you cannot curb them, fix the monthly expenditure on mandatory items to 50% of the monthly income.
Non-Essential Expenditure
It may be your interest to explore the world through travelling. You may wish to purchase makeup from Bobbi Brown. All the expenses catering to your lifestyle come under the category of non-essential spending. The more you have, the more you want! Contentment is not easy to get. Nonetheless, it is essential to containing the lifestyle expenses to 30% of your income. If they encroach this boundary into your savings or investments then be ready to compromise on your essential spending or financial goals in the future. You can observe maximum flexibility in this category of your monthly expenses.
Savings and Investments
After retirement, the incoming money faults or reduces. You may have future financial endeavours may be many like your child’s education or marriage, international travel, purchasing a house, and pension. The time to take a step towards them is now. It is essential to build a corpus while you are earning. Savings alone cannot create wealth. Begin investing your money as per your risk appetite to fund your financial goals. If not greater then at least 20% of your monthly income should go towards investment and savings. Getting from a certified financial consultant is best to decide where to invest your money.
Managing finance is not everyone’s cup of tea. However, the fact is that finance management is quintessential in life. You cannot manage the money yourself. No problem! Consult an expert. An easy and quick solution is 50/30/20 rule. It takes care of necessities, comforts, and dreams. You can modify the rule as per your circumstances. If you earn quite well then choose to invest more than 20% of your income.
