Saturday, February 29, 2020

Manage Your Money - The 50/30/20 Rule

We are already living in an era where the business giants are managing the economy of the country and taking that into consideration the only thing that has value today is ‘MONEY’ and everyone is in pursuit of it. We as Indians have gone through different eras in the past. It began with the era of Kings and Emperors, then the era of Military Personnel’s during the war periods, then the era of politics which ruled the country for a while and now it’s about a handful of rich people who run multiple businesses across the nation who control the economy of the country.

Many of us who are not self made entrepreneurs or have not inherited a fortune from our forefathers depend on our daily jobs and our monthly wages to live our day to day lives. Here is where the urge to manage your money comes into play. Managing money has become as important as managing one’s life. There is a saying now a days that “Money is the only God that exists today”. 

Below is how the 50/30/20 rule helps us to manage our money better.

1.NEEDS (50%) – Our needs is a major contributor when it comes to our expenditure.

Housing: The real estate sector has been more expensive than ever before. Housing whether it’s about rent or buy it does take out a major chunk of our expenses on a monthly basis.

Food: The food stuffs that we buy on a daily basis just to survive at home. This does not include dining at restaurants.

Healthcare: This includes our doctor’s consultation fees, daily medications, blood test, any kind of hospitalizations & health insurance EMI. 

Utilities: Electricity Bills, Gas Bills, Phone Bills etc etc 

Debts: These include Student Loans, Car Loans, Wedding Loans, Housing Loans etc etc

2.WANTS (30%) – Our wants is the next contributor to our total expenditure.

Clothing: The kind of clothing that we wish to purchase is a personal choice. Here is one area where you can further save more on your expense. Clothes can be purchased during festivals when the discounts are huge.

Gadgets: Gadgets are no doubts a useful tool in our day to day lives. However, how much we wish to spend on these tools is totally up to the individual making the purchase. For some it’s more about the basic functions of the gadget where for some it’s a style statement. You can surely give it a thought and reduce your expense on expensive gadgets after all technology keeps changing and there will always be a requirement to get the new stuff in the market.

Entertainment: Watching movies at theaters, attending concerts, Netflix etc can surely shoot up your bills higher than required.

Restaurants: Today dining at restaurants is no more a reasonable affair. With different cuisines and ambiance designed for different restaurants the price of the experience reflects on the dishes you purchase. The amount of money you spend on a weekend on food and drinks can get you a whole week worth of groceries at home.

Vacations: Vacations are important in today’s stressful lives. Some of us even love travelling and exploring new places as a hobby. There are also customized packages designed by certain tours and travels to ensure it suits your budget and your needs. It’s always advisable not to go overboard when it comes to your vacations.

3.SAVE / INVEST (20%) – Saving and Investing for the future is the need of the hour
Fixed Deposits: Fixed Deposits are fixed term deposits that yield returns provided you have not withdrawn the amount during the required term. Senior citizens are given a high interest rate for fixed deposits. It’s always advisable to have a joint fixed deposit with your parents to ensure you make the most of it. Also, in case of any emergencies you also have the option to use the funds just that it will affect the interest for that year.

Mutual Funds: Investing in stock markets is the next big thing today. People are migrating from Fixed Deposits to Mutual Funds in an attempt to triple their return, however there are always risks involved in it too.

Emergency Funds: In today’s world there is no guarantee whether it’s your job or your life. It’s always recommended to have emergency funds for at least 12 months time in case you are laid off from your job or in case of health issues or hospitalizations.

Debt Repayment: The earlier you pay off your debt, the more are the chances for your personal savings to increase considerably. Whenever you have an additional amount that comes in from any of your investment just put it towards your debt as that will not only ease the financial pressure on you but you will also land up paying less interest to the banks.

Life is short. Invest your time and money in the right places and that will help you financially in your future. Further, I would also recommend if you can change the rule overtime from 50/30/20 to 50/20/30 rule. Having said that it does not mean that you are not supposed to enjoy your life and only save on money. Always remember that we are mortal and we are not taking any of our possessions with us when we return to the earth. This article will only help you to manage your money better to ensure you are financially stress free.