Indian women are playing a key role in not just being a housewife or salaried employees or investors but also have taken up leading roles either in startups or major companies. With the International Women's Day nearing on March 8th, let's have a brief understanding of the 50:30:20 golden rule that working women can use for their savings.
One of the simplest budgeting methods would be 50:30:20 rule which typically comes in handling while managing your money. It generally helps in narrowing down your pay checks for three major factors --- Needs, Wants, and Savings.
According to Priti Rathi Gupta, Founder of LXME, as a salaried woman, you can follow the 50:30:20 Rule, which is the golden rule of budgeting. It is a great idea to start with which allocates 50% of your income to needs, 30% to wants, and 20% to savings and investments. You can always customize the percentages as per your needs.
For example, let's suppose Miss A earns ₹25,000 per month. Using the 50-30-20 rule --- Miss A will remove 50% which would come to around ₹12,500 for necessities. Expenses can be electricity bills, education fees, tuition fees, mobile bills, and groceries among others. The 30% of the salary would be around ₹7,500 which can be kept for 'WANTs' such as shopping, movies, and dining out among others. The last would be 20% which would come to around ₹5,000 for savings.
There are ample affordable investment options such as mutual fund SIPs, equity shares, provident funds, pension schemes, and bonds available in the market where you can put your savings. Other than that, savings can also be used as emergency funds, or other requirements.
After the 50-30-20 rule, Rathi highlighted the following saving tips:
- Then chart out your goals in terms of ultra-short-term goals (less than 1 year), short-term goals (1- 3 years), and long-term goals (more than 3 years). Based on your goals, you can start investing!
- Start small but start investing and watch the power of compounding do its magic over time.
- Start investing for your retirement
- Build an emergency fund that is equivalent to 6-8 months of your monthly expenses as it can help you stay afloat in times of a financial crisis.
- “Don’t put all your eggs in one basket!’ Diversify your investments across asset classes to manage the risks.
- Plan your taxes early in the year to avoid making unfruitful decisions at the last moment.
FAQs
The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.
What is the 50 30 20 rule for savings? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.
Which of the following expenses is a savings according to the 50 30 20 rule? ›
20% — Savings and Debt Repayment
The 50/30/20 plan prioritizes savings and debt reduction, but the breakdown of savings or debt payments will depend on your personal circ*mstances. Savings can include retirement contributions, an emergency fund, or a goal like homeownership or travel.
What is the 50 20 rule for money? ›
The rule is very simple in practice. It asks you to break your in-hand income into three parts. 50% of the income goes to needs, 30% for wants and 20% to savings and investing. In this way, you will have set buckets for everything and operate within the permissible amount for each bucket.
Why might the 50 30 20 rule not be the best saving strategy to use? ›
For example, if you live in a high-cost area, you may have to put a large part of your income toward housing, making it difficult to keep your needs under 50%. So, you may need to adjust the percentages to fit your situation. The categories also may or may not work for you.
What is the 50 20 30 savings rule of thumb quizlet? ›
A popular savings rule of thumb in which 50% of your income goes towards necessities (groceries, rent, utilities), 20% goes towards savings, debt, and investments, and 30% goes towards flexible spending.
What is one negative thing about the 50 30 20 rule of budgeting? ›
Cons. Risk of overspending. Allocating 30% of your income for non essential wants is a large amount of money, especially when compared with only 20% toward savings. Try not to spend money on things that aren't important.
Is the 50/30/20 rule still realistic? ›
The 50/30/20 rule may not be realistic for everyone, especially considering high inflation and the rising cost of living. For example, if you live in a high-cost-of-living area, it may be impossible to limit your needs to 50% of your pay.
How is money divided using the 50/30/20 method? ›
The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.
How to do the math for the 50/30/20 rule? ›
Applying the 50/30/20 rule would give you a budget of:
- 50% for mandatory expenses = $2,000 (0.50 X 4,000 = $2,000)
- 30% for wants and discretionary spending = $1,200 (0.30 X 4,000 = $1,200)
- 20% for savings and debt repayment = $800 (0.20 X 4,000 = $800)
50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).
What is the 50 30 20 rule for car payments? ›
Balance Your Budget
50% for needs like housing, food, and transportation. In this case, the monthly car payment and other related auto expenses fit into this category. 30% for wants like entertainment, travel, and other nonessential items. 20% for savings, paying off credit cards, and meeting long-term financial goals.
Where did the 50/30/20 rule come from? ›
The 50/30/20 budget rule was popularized by Sen. Elizabeth Warren—then a Harvard Law professor—and her daughter, Amelia Warren Tyagi, in their 2006 book “All Your Worth: The Ultimate Lifetime Money Plan.” They called it a “good rule of thumb” for getting your budget in order.
What is better than the 50/30/20 rule? ›
The 60/30/10 budgeting method says you should put 60% of your monthly income toward your needs, 30% towards your wants and 10% towards your savings. It's trending as an alternative to the longer-standing 50/30/20 method.
Does 50/30/20 include 401k? ›
A 401(k) can count as savings in a 50/30/20 budget plan. But if 401(k) contributions are automatically deducted from your paycheck, they're not included in your take-home pay calculation.
What is the 50 30 20 rule a good savings target? ›
At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items. This is called the 50/30/20 rule of thumb, and it provides a quick and easy way for you to budget your money.
Does 401k count as savings in the 50 30 20 rule? ›
A 401(k) can count as savings in a 50/30/20 budget plan. But if 401(k) contributions are automatically deducted from your paycheck, they're not included in your take-home pay calculation.
What is the 40 percent rule in savings? ›
The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.
What is the 50 15 5 rule of thumb for saving and spending? ›
The 50/15/5 rule for spending and saving provides guidelines that could make budgeting a little easier. It allocates 50% of your income to essential expenses, 15% to retirement and 5% to short-term savings.
What is the 25 rule of saving? ›
If you want to be sure you're saving enough for retirement, the 25x rule can help. This rule of thumb says investors should have saved 25 times their planned annual expenses by the time they retire, according to brokerage Charles Schwab.
