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The 50-30-20 rule means dividing your take-home salary, or the amount you receive after taxes, into three parts, with 50 percent of your salary being spent on essential items.

If you're employed, you may often face the problem of not knowing where your money has gone once your salary is credited. Within the first 10 to 15 days of the month, expenses like rent, home loan payments, children's fees, rations, electricity, water, transportation, and EMIs deplete your budget. Then, by the end of the month, there's nothing left to save. Financial experts believe that the problem isn't just low income, but unplanned spending is the root cause.

If you don't know exactly how much money will go where, as soon as you receive your salary, saving becomes difficult. In such a situation, experts consider the 50-30-20 budget rule to be a simple and effective method that helps build financial discipline by dividing your income into three parts. Let's explain the 50-30-20 budget rule today, which will help you start saving.

What is the 50-30-20 budget rule?

The 50-30-20 rule means dividing your take-home salary, or the amount received after taxes, into three parts. 50 percent of your salary should be spent on essential items. This includes house rent or home loan, groceries, milk, vegetables, electricity, water, gas, children's fees, office travel expenses, necessary insurance and EMIs. The remaining 30 percent includes expenses that are not essential but make life easier, such as eating out at restaurants, online shopping, OTT subscriptions, traveling, gadgets, or other hobbies. The purpose of this section is to keep your budget balanced so you don't feel completely tied down and your plan can last long.

Next comes the 20 percent rule, which includes savings and investments. This section is for your future. It includes emergency funds, SIPs, mutual funds, PPF, NPS, RD, FD, retirement planning, and money for early repayment of additional debt. Regarding this section, experts say that this 20 percent should not be considered the amount left after expenses, but rather a pre-determined mandatory amount.

Understand the 50-30-20 rule this way

Financial experts say that if your monthly salary is 50,000 rupees, then 50 percent of it, i.e. 25,000 rupees, should be spent on necessities. Whereas 30 percent, or 15,000 rupees, will be spent on things that make your life easier, and the remaining 20 percent, or 10,000 rupees, will be spent on savings and investments. In this way, if you set aside a fixed 20 percent each month, you will gradually build an emergency fund and reap the benefits of the investment in the long run.

How to start with a low salary?

People often believe that saving is impossible with a low income. However, experts say that it's possible to start with a small amount. Saving is usually 500 or 1,000 rupees per month. After that, you can gradually increase the amount and develop the habit of saving something every month. Experts say that it's not necessary to save 20 percent right from the start. Therefore, it's more important to develop the habit of saving first.