When we have a job, responsibilities come with it. We try to support our parents financially and save as much as possible. However, proper planning is essential for this. Along with planning, budgeting and discipline play a crucial role. This article will help you become financially strong and create a proper budget. Although there are many formulas for financial budgeting, the most popular one is the 50-30-20 formula. Through this article, we will spotlight the 50-30-20 formula, its advantages, and how it can be useful in everyone’s life.
What is the 50-30-20 Formula?
In this formula, you divide your salary into three parts. In the formula, 50% is for expenses, 30% for needs and 20% for savings. This formula helps in managing expenses along with savings. Apart from this, it also helps in achieving many financial goals.
How does the 50-30-20 Formula work?
To help you understand better, let’s consider an example. Suppose a 28-year-old woman lives in a PG in Delhi and earns Rs 50,000 per month. Out of this, she sends Rs 10,000 every month to her parents. Now, the question arises: How can she save money using this formula while covering her expenses and needs? The lady gives Rs 10,000 from her salary to her parents every month. After this, her total salary is Rs 40,000. According to the 50-30-20 formula, she will have to spend 50 per cent of her monthly salary, i.e., Rs 20,000. This expense includes PG rent, food, electricity bills, etc.
Allocating Money for Needs
Next, divide the remaining 50 per cent of her salary into two parts. Use 30 per cent of the remaining salary, i.e., Rs 12,000, for “needs.” By needs, we mean lifestyle expenses like gym memberships or attending workshops. While spending on these needs, she should also try to save some money, which can be used to fulfil small goals, such as taking a trip or buying expensive brand clothes and gadgets.
Savings and Investments
The remaining 20 per cent of her salary, i.e., Rs 8,000, should be saved. It’s important to build an emergency fund with a portion of these savings. This fund will provide financial support in case of an emergency. Additionally, she should invest some of this amount in opportunities that offer returns, helping her savings grow. It’s crucial to maintain a balance in the savings account to cover medical emergencies.
By following the 50-30-20 formula, Everybody can effectively manage her expenses and savings while ensuring they have financial security for the future.