we all are hearing that expenses are rising day-by-day; This is due to inflation-The silent killer and wealth destroyer. As per Government, inflation in India is about 6-7%, but in “Real”Terms it is above the government statistics.
We as individuals can’t control inflation; The one thing we can do is to prepare a budget and stick to it. It was followed by our older generation, but slowly this trend is changing. This is due to digital payments and flexibility to swipe cards(whether it might be debit or credit cards)anywhere! anytime!
We are not saying not to make digital payments; of course they gives instant cashback offers, reward points etc. Actually this is a “Debt-Trap” to spend heavily on unnecessary things.
We can observe this debt-trap if you write down each and every expense and classify them between “Needs” and “Wants”.
What is 50:30:20 rule?
According to financial planners, divide your income of 50% into your needs; 30% to your wants and 20% to your savings and investments. Let us elaborate this categories-
Need– A need is one which can’t be compromised on. It would be essential in our day-to-day life. Example- Food, Clothing, Shelter, Living Expenses etc
Want– A want is one which can be delayed for some more time and not necessary as of now. Example- Buying Fancy Dresses, spending lavishly on outside food instead of home food etc
Savings and Investments– It is essential to be ready for the future emergencies and for that one has to do savings and investments as per one’s risk appetite.
But do remember investments are essential to be future-ready. To beat inflation and live happily further one must do investments whether it might be in shares, mutual funds and real estate(for real estate investments large sum is required)depending on their income levels.
Financial Planners Strategy– As already discussed, Financial Planners suggest to spend 50% of your income on needs, 30% on wants and 20% on savings/investments. One should follow this rule and be financially free.
One can slightly alter 30% to investments and 20% to wants; if needed. It will depend on the circumstances of the individual. But in reality one who follows 50% for wants, 30% for investments and 20% for wants would lead a financially secure life.
If you are not following this rule till now, implement this rule from Today.