With the steadily rising inflation and cost of living, having an adequate savings pool and controlling one’s expenses becomes crucial. The best way to start is by setting a budget rule.
The budget rule gives a good idea of the direction of your salary. Having an idea about this also ensures that you can reduce all your redundant and unnecessary expenses. Once you visualize the inflows and outflows of your money, you can then start making a concerted effort to bid farewell to all those unplanned fancy meals and online shopping. In the process, you will end up saving much more than that.
What is the 50/30/20 budget rule?
The 50/30/20 budget rule is one of the best known ways to start a solid money management journey. It doesn’t matter how much you earn. You can easily apply this rule and develop much needed financial discipline. Here’s how you can get started:
First, write down your total earnings. Whether it’s full-time jobs, any freelance gigs, or short-term projects, include them all. Suppose it came down to INR 50,000.
Next, divide this amount into three groups of 50, 30 and 20.
50% make up your needs
This amounts to INR 25,000. You can fund all basic payments via this widget. You must pay rent, electricity and other utility bills. This is an inevitable, intrinsic expense of your survival. Thus, it cannot be delayed at any cost.
In addition, you must also pay all loan installments, the minimum (at least) due on credit cards and insurance premiums with this sector. Establishing your financial health is important and, in fact, non-negotiable.
Hence, make sure you set aside enough money in the beginning to save you from feeling guilty for not saving and investing enough! The idea is to pay off the immediate and urgent liabilities that will only accrue next month and cause a financial nightmare. Failure to pay loan installments can damage Balance level. Not to mention that the total amount owed can quickly spiral out of control thanks to the spiraling interest.
Note: There is a huge difference between need and want. And in our fervent desire to get our hands on that phone or game, we often blur the boundaries. So, don’t try to ignore it sand dune set As a need only because you love him. To distinguish between need and want, the basic question to ask is: Can you survive 10 days without it? If you can, please postpone their purchase.
Most of us block our Amazon and Nykaa shopping carts as a necessity and buy recklessly. One way to start budgeting and keep impulse shopping in check is to wait. Try to wait three days before clicking “Checkout” in your cart. Chances are, you won’t even remember it. And if desired, the time interval will get rid of all unnecessary elements.
30% makes up your desires
So, about 15,000 INR. Leave your hair down here! All your shopping, book groups, hobby classes and solo trips can get a chance of a life here. Think of this as your “fun box”. The purpose of this fund is not only to survive but thrive.
Given how our desires never end and always happen, it is necessary to put an end to them at some point. This may mean that you find your Want box seriously inadequate. The temptation to indulge your savings to fund all these immediate desires will be very high. But stop.
Retail therapy is real but should not be used as a matter of convenience. Your hard earned money should give you a worthwhile experience. Reckless shopping is an instant gateway to regret. Incorporate wisdom into the way you shop and choose. This will help you get only the items you really need.
If you’re looking to make an expensive purchase, like an I-phone, split it up. Don’t waste an entire month of your desired money on just one purchase. Instead, regularly set aside a separate, smaller box dedicated exclusively to this issue.
INR 10,000 – This should be set aside for your savings and investments. We live in a pandemic in an era of costly healthcare and job uncertainty. One visit to the hospital can drain all your money. Hence, you must have enough stuff stashed aside to ride times like this. Without a doubt, this is your most important financial bucket.
Ideally, you should have emergency funds to cover all urgent and unexpected expenses. This should be your average monthly expenses for half a year. But remember that savings alone is not enough because inflation is steadily eroding the purchasing power of our money. What is valued at INR 100 today will cost INR 150 tomorrow. Goal-based long-term financial planning should be your goal to fund all the major milestones in your life.
Therefore, investing in ways to beat inflation should be your top priority. With age on your side, you can consult a financial advisor and work on an investment basket that ensures optimal asset allocation to achieve your short and long-term financial goals.