Does the salary end as soon as it arrives? ‘Rule of 50/30/20’ will attract money like a magnet, know this magical way of making budget! – ..

Often the biggest complaint of employed people is that the salary gets exhausted at the beginning of the month and the bank account always remains empty in the name of savings. If you are also struggling with this problem, then the 50/30/20 rule of budgeting can prove to be a game-changer for you. This formula is very popular among personal finance experts, which completely balances both your expenses and savings by dividing your income into three easy parts.

What is the 50/30/20 rule of budgeting?

According to this brilliant financial rule, you have to divide your in-hand (post-tax) income into three clear categories: 50 percent for needs, 30 percent for your desires or lifestyle and 20 percent for future savings. When you decide in advance a fixed amount for each category, unnecessary expenses are automatically controlled and financial discipline is maintained. This also eliminates the habit of wasting money from one fund on another hobby.

First part (50%): For your basic needs

The first step to this rule is to set aside 50 percent of your total income for your basic and most essential needs. This category includes those expenses which you cannot avoid at any cost. This includes your house rent, household food, electricity and water bills, children’s school or college fees, health services and other important household responsibilities.

Second part (30%): For your hobbies and lifestyle

Earning money is not just about paying bills, but also about enjoying life. Therefore, this rule reserves 30 percent of your income for your wants. In this, you can spend like eating out in a restaurant, watching a movie with friends, taking a weekend trip, pursuing any of your favorite hobbies or buying any unnecessary electronic gadget. This part gives you complete freedom to enjoy your life without any financial guilt.

Third part (20%): For secure future and investment

This part is the strongest foundation of your future. You should put the last 20 percent of your salary directly into savings and investments. You can use this money to create a strong emergency fund, start SIP in mutual funds or open FD. This savings becomes your biggest support in any sudden financial crisis and helps in achieving your long-term financial goals.

Important update for EPF account holders also

Talking about future security, EPF (Employees’ Provident Fund) is considered to be the strongest financial support for employed people after retirement. In this scheme run by the Employees Provident Fund Organization (EPFO), the money of both the employee and the company (employer) is deposited, on which the government gives handsome interest every year. Recently, the government has also clarified its position on the discussions in the Parliament on increasing the interest rate of EPF to 10 percent, which is helping the employees to understand their future planning better.