![]() It ensures that these savings help you enjoy the same lifestyle that you are currently living. This money helps to take care of your future needs. This is the last and most crucial component of the budgeting rule, which facilitates financial planning. But it is a tool that allows you to watch your spending habits and be in control. However, this rule does not ask you to stop enjoying life by giving up on items that give you joy. Hence, if you feel you are spending more than 30% of your income towards wants, you can look to cut back these expenses. There are always some hidden charges which are not apparent to us. However, there is nothing free in this world. You may purchase these items on no-cost EMIs or schemes with zero processing charges. Sometimes you are also tempted to buy expensive items and satisfy your wants. For instance, buying traditional watches over luxury watches, buying a hatchback over buying an SUV. Most of the wants are expensive and require a lot of money. You can always look to regulate these expenses. ![]() Buying the latest gadget like iPhones, smart tv, etc.Entertainment expenses like movies, Netflix, etc.Some of these expenses include the following – It includes all expenses that make your life more enjoyable. In other words, you can do without these articles but would love to have them. These are expenses that are unnecessary for survival but considered luxuries of life. This is the second component of the budgeting rule. Basically, you need to look to increase your income or look for alternatives where you can downsize your current lifestyle. Even though this is undesirable, you can cut back on your luxuries. There is a possibility that you may spend more than 50% of your post-tax income on your needs. This section does not include TV cable, Netflix, eating out, lifestyle, or entertainment expenses. If you fail to make these payments, you are likely in trouble or gathering more obligations for next month which will include extra charges for late payments. Thus, they are always on the urgent list of money. Utilities like electricity bills, water bills, etc.Īs per this rule, half of your post-tax income is used for a basic standard of living with all the obligations to take care of.Thus, your needs dominate the expenditure bucket, and you cannot live without them. The basic requirements of food, shelter and clothing fall in this category. ![]() ![]() Needs are the basic expenses that you absolutely require for your living. Let’s look in detail at what the 50/30/20 rule of budgeting rule looks like – 50% for Needs Instead, using this rule, you can balance your money across needs, wants, and savings. This book concludes that you don’t need a complicated budget to get your finances in check. Senator Elizabeth Warren in the US wrote a book in 2005 titled “All Your Worth: The Ultimate Lifetime Money Plan”. Also, it helps to reach your financial goals by saving more. In other words, it helps to build a structured spending habit. Also, with only three major categories, you can save yourself from the time and stress of understanding the details every time you spend. This rule helps to keep your expenses balanced across the main spending areas and put your money to work more efficiently. Use Income Tax Calculator to calculate your post-tax income. This is not a hard and fast rule but a simple guideline that helps you build a financially strong budget. This basic thumb rule is to divide your post-tax income into three spending categories – 50% for needs, 30% for wants, and 20% for savings. The 50/30/20 rule of budgeting is a simple method that helps you manage your money more effectively. What is the 50/30/20 Rule of Budgeting?. ![]()
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