Planning my finance - 50:30:20 Rule

It is well known that we millennials struggle to manage our finances efficiently. Despite earning a reasonable sum, I still live from pay-check to pay-check. This leaves me with no opportunity to create wealth over time. As we are in the end of 2021, every one will be busy making their new year resolution list. And I’m busy planning my finances (No! It’s not the first time. Planning is easy, executing is HARD). Below is my plan for 2022

50:30:20 Rule

No matter where you are in your financial journey, how much you earn, one budgeting method 50:30:20 rule will be a simple strategy to start planning your finance. This rule of thumb will help people to determine how much to spend and on what.

The rule is very simple. You just need to break your in-hand income in 3 parts

• Needs: 50%
• Wants: 30%
• Saving: 20%

The 50 30 20 budget was first invented by US senator Elizabeth Warren, which she designed to help families from all sorts of backgrounds take better control of their finances

Needs are the things which we absolutely require for our survival or must necessarily do to live. Think of what you spend every month that is essential for you to live on and put them into your “needs” bucket.Needs are activities like paying 🏠 Rent, 🍱  groceries and food, ⚡Electricity and other utility bill, 🏥 Medicines, 💳 credit card and other obligations that we must fulfil. Following this rule, 50% of your income should be allocated towards “Needs”.

Wants: 30%

Wants does not required for your survival but these are nicer things you can buy for yourself which are like a luxury or gives you pleasure. These includes 🛍️Shopping, 🎥 movies, 🍝 restaurants, 🍺 happy hours and 🚋 leisure travels —basically, anything that doesn’t cover basic necessities. By abiding by the 30% rule, you can save and splurge at the same time

Savings: 20%

The great thing about this budgeting method is that your saving habit is taken care of (finally!). The savings bucket is what will sail you through in the future. Depending on what stage you’re at, this could be for paying off debt, building an emergency fund, saving for a house and saving for retirement. This is your chance to set aside the money you know you’ll need in the future.

Yes, there are some caveats to the 50 30 20 rule. As we’ve mentioned before, this method is only a rule of thumb and therefore only a rough guideline on what you should be spending your money on. 50:30:20 method is a good way to get into the habit of making savings and debt repayment a consistent part of a budget.

However, following the bucket allocation percentages to the exact amounts might not be realistic, based on your income and how much your necessities cost.

That’s not to say this method of budgeting isn’t useful. Using the bucket amounts as a starting point can help you identify where you’re overspending. You might realize you spend too much on subscriptions or dining out and use that information to make adjustments.

One of the best book i come across financial planning is RICH DAD POOR DAD by Robert Kiyosaki. It will tech you how you don’t need to make a lot of money to get rich, assets and liabilities, and explains to parents why schools won’t teach your kids what they need to know about personal finance.

Happy Investing! Vijayeebhava..