50-30-20 Rule
Personal FinanceThe 50-30-20 budgeting rule allocates after-tax income into three categories: 50% for needs (rent, food, utilities, EMIs), 30% for wants (dining out, entertainment, lifestyle), and 20% for savings and investments. It provides a simple framework for financial balance.
In detail
50-30-20 in Indian context (Rs 1L take-home monthly):nNeeds (50% = Rs 50K): rent Rs 20K + groceries Rs 12K + utilities Rs 3K + commute Rs 5K + insurance Rs 3K + EMI Rs 7KnWants (30% = Rs 30K): dining Rs 8K + shopping Rs 10K + entertainment Rs 5K + travel Rs 7KnSavings (20% = Rs 20K): SIP Rs 10K + PPF Rs 7K + emergency fund Rs 3KnnModify for Indian realities:nHigh savings phase (25-30): increase savings to 30-40%nLow income: 60% needs is realistic if in expensive citynHigh EMI: restructure to 60-25-15 temporarilynnThe key: savings should be non-negotiable. Invest first ("pay yourself first"), then live on the rest.
Real-life example
Priya earns Rs 80K/month take-home. 50-30-20:nNeeds Rs 40K: rent Rs 16K + food Rs 10K + transport Rs 5K + utilities Rs 3K + insurance Rs 2K + home loan Rs 4KnWants Rs 24K: dining Rs 6K + shopping Rs 8K + OTT/entertainment Rs 4K + misc Rs 6KnSavings Rs 16K: Nifty 50 SIP Rs 10K + PPF Rs 4K + emergency fund Rs 2KnThe Rs 16K monthly saves Rs 1.92L/year. Over 20 years at 12%: Rs 1.76 Cr corpus.