It's Time: Every Young & Broke Person Should Know About This 50/30/20 Budget Rule

This is not unexpected if you suffer from poor money management in an age of inflated lifestyles and instant gratification given by the widespread usage of credit cards and "pay later" applications.

Young and ambitious professionals trying to live the city life commonly suffer from poor financial management. If you find yourself in the same situation, this week's edition of the #It's Time series is here to help you expand your understanding of a popular budgeting rule that can help you get your money back on track. The famous and most common rule is "50/30/20 budgeting."

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The Popular 50/30/20 Rule Of Budgeting

The 50/30/20 rule of budgeting is a basic strategy that helps you manage your money more successfully. Divide your post-tax income into three spending categories: needs, wants, and savings. This is not a hard-and-fast rule but rather a general guideline to help you create a financially sound budget.

While following this rule, one should keep 50% for needs, 30% for wants, and 20% for savings.

Senator Elizabeth Warren of the United States published a book titled "All Your Worth: The Ultimate Lifetime Money Plan" in 2005. This book indicates that a detailed budget is not required to keep your money in order. Instead of utilising this method, you may balance your money between needs, wants, and savings.

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What Falls Under "Needs"?

Needs are the essential costs that you must have in order to live. This category includes the fundamental needs for food, shelter, and clothes.

What Falls Under "Wants"?

Wants are basically the costs that are not required for survival but are considered lifestyle indulgences. In other words, you don't need these articles but would appreciate having them. It includes all costs associated with making your life more joyful. Among these expenses are those for entertainment such as movies, Netflix, eating out, gym memberships, shopping, travel, purchasing the latest gadgets, and so on.

What Falls Under "Savings"?

Money in savings will assist you in meeting your future demands. It assures that your funds will allow you to maintain your existing lifestyle. This component of the budget can be used for goals like your own education, your children's marriage, your own marriage, etc.

Bonus Tip: One should always try to expand their savings over time. One can begin with a certain amount of emergency savings for unforeseen circumstances such as medical difficulties.

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Understand The 50/30/20 Rule Of Budgeting With An Example:

If Mr.X earns Rs. 50,000 per month. His monthly spending may look something like this:

50% of Rs. 50,000: So under 50% needs, Rs. 25,000 will be covered on, say, EMIs, car fuel, electricity bills, groceries, etc.

30% of Rs. 50,000: So under 30% wants, Rs 15,000 will be covered by, say, cable, shopping, and movies.

20% of Rs. 50,000: As part of the 20% savings, Rs 10,000 can be set aside for emergency funds, SIP investments, and so on.

Bright Side Of 50/30/20

The 50/30/20 budgeting rule has various advantages. It divides your finances into three areas to help you manage and arrange them using simple arithmetic. It can also assist anyone, regardless of their own circumstances. It also helps you understand what you can afford and prepare for your future financial objectives.

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Following the 50-30-20 guideline will enable you to exercise due care in your financial affairs and guarantee that all of their money is not just gone. If you understand the inflows and outflows of wealth, you will be able to have better control over how you wish to spend your money and, as a result, become more conscious of your spending habits. To get the most out of your money, make sure you balance all of your buckets according to this rule. So keep saving, and happy investing!

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