Salary Manage Formula: A big problem with every employed person is that he waits for his salary for the whole month and does not know where it goes as soon as the salary arrives. In such a situation, it is necessary to make a salary budget for every month and spend money accordingly. To make a monthly budget, you can take the help of 50-30-20 formula, which will improve your financial planning and you will have a lot of money saved.
What is the 50-30-20 formula?
The 50-30-20 formula was started by Elizabeth Warren, a member of the US Senate and one of Time magazine’s 100 most influential people. She wrote about it with her daughter in her 2006 book All Your Worth: The Ultimate Lifetime Money Plan. Under this, she divided her salary into three parts – needs, wants and savings.
Spend 50% on these things
According to Elizabeth Warren, we should spend 50 percent of our income on things that are essential for us and without which we cannot survive. This includes things like household ration, rent, utility bills, children’s education, EMI and health insurance.
Rules for 30% share
The second part of this rule is 30%, which should be spent on your desires. These are such expenses which can be avoided, but spending money on them gives people happiness. These include watching movies, going to the parlor, shopping, eating out or fulfilling your hobbies.
Spend the remaining 20% here
Its third and last part is 20%, which should be kept for savings as per this rule. This money should be used for planning your retirement, children’s higher education, children’s marriage and emergency fund.
Let us understand the rule with an example
Suppose your monthly income is 50 thousand rupees. In such a situation, according to the 50-30-20 rule, you should spend 50 percent i.e. 25 thousand rupees on household needs. This will include essential expenses like house rent, ration, electricity-water bill, child’s fees, car petrol.
Spend 15 thousand rupees here
You can spend 30% of this amount, i.e. 15 thousand rupees, on your desires. These desires include travelling, watching movies, shopping for clothes, buying mobile-TV or other gadgets etc.
Save the remaining 10 thousand
After doing all this, you will be left with 20% i.e. 10 thousand rupees. You should put this money in savings. You can invest this money in different ways as per your convenience. You can do FD, invest in NPS for retirement, invest money in PPF for long term or you can also do SIP in instruments like mutual funds. By the way, the best way to invest is to invest small amounts of money in many places.
