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It often happens with everyone that by the end of the month, their entire salary is over, and then there are no savings at all. So the biggest reason for this is not being able to make a proper budget. However, there is a very simple and effective rule that can solve this problem of yours, it is called the 50/30/20 budget rule. By the way, this rule teaches you to control your expenses and savings by dividing your income into three parts. The most special thing about this rule is that a person from any income group can easily follow it.

So let's understand how this rule works and how to implement it.

What is the 50/30/20 budget rule?

50% - Needs:
This part is for those expenses that are very important for your life. You cannot live without them.

Example: House rent or home loan EMI, ration, electricity-water-gas bill, phone and internet bill, children's school fees, and fuel expenses for the vehicle, etc.

30% - Wants:
This part is for those expenses that make your life better, but can be done without. It is for spending on entertainment and hobbies.

Example: Eating out, online shopping, subscription to OTT platforms, watching movies, vacations, and buying expensive clothes, etc.

20% - Savings and Investment:
This is the most important part. You should save and invest this money for your future.

Example: SIP (Systematic Investment Plan), emergency fund, investment in PPF or FD, depositing money in retirement fund, and saving for a big goal (like a house or a car).

Understand how this rule works with an example.

Suppose your monthly income (after tax deduction) is ₹50,000. According to this rule, you should divide your income like this:

50% (₹25,000) - Expenses on needs
House rent/EMI: ₹15,000
Ration and household expenses: ₹7,000
Electricity, water, phone bills: ₹3,000

30% (₹15,000) - Expenses on wants:
Eating out: ₹5,000
Online shopping and entertainment: ₹5,000
Other expenses: ₹5,000

20% (₹10,000) - Savings and investments:
Investments in SIP: ₹5,000
Deposits in emergency fund: ₹5,000

This means that every part of your salary has a fixed purpose, and you have money to save at the end of the month without any problem.

What are the benefits of this rule?

Simple and effective:

It is very easy and does not require any hard software.

Financial discipline:

It gives you a framework for spending and saving, which makes you financially disciplined.

Life balance:

This rule allows you to spend on your desires as well as fulfill your needs, which maintains balance in life.

Let us tell you that the 50/30/20 budget rule is a great way to make financial planning. By following it, you can manage your income in a better way. (Note: This article is for information only and should not be considered as investment advice in any way; suggest consulting financial advisors for investment)

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.