Budgeting for expenses confusing you, try the 50 30 20 rule

2 Aug 2022

Keeping expenses under control. An activity that baffles most of us!

Understanding how to keep a check on expenses, saving enough and also keeping pace with the rising costs often makes us think that managing expenses is a tall task!

Here’s the good news – it can be made simpler. A little more of being organised and disciplined, and some simple math can help with you with budgeting.

Discussing today – the 50/30/20 rule.

Don’t let the numbers confuse you – it is actually simple. It means that 50% or half of your salary should go into basic expenses, 30% should be used for discretionary and 20% should go into savings.

So whatever your net earnings are, half of it should be budgeted for your basic expenses, or what we can call essentials.

This includes your rent, EMIs, transportation, utility bills such as electricity, gas, internet, hired help etc, and groceries and other fixed costs. In case of children or elderly in the house, education and related expenses and medical costs should also be a part of these fixed expenses.

The next part is the discretionary expenses. Sometimes, discretionary expenses or wants can be bordering on the line of essentials – but that is something individuals need to take a call on.

But your wants or discretionary spending would ideally be things you can do without, and curb when needed. This could include eating out, an impromptu shopping plan, going out for movies, or monthly subscriptions to various streaming services.

About a third of your total budget goes into these things - good to have, but can be avoided if needed.

The most important part, perhaps, of budgeting is saving – something that often goes on the back burner because of higher-than-expected expenses.

One-fifth or 20% of our monthly income should go into savings – it may seem complicated, but it is possible with discipline and of course, budgeting.

A smart thing to do, of course, would be to keep aside savings as soon as you get your salary, as this could help curb discretionary expenses in case your essential spending exceeds budget for the month.

So there you go – the 50, 30 and 20 of your budget.

Do try it out, and if you are looking for options to invest your savings, here is something you can consider!

 


 

This article is for information purposes only. The information provided herein is derived from public sources, believed to be from reliable sources. However, no representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. Views expressed herein involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. Kotak Mahindra Mutual Fund/ Kotak AMC is not indicating or guaranteeing returns on any investments. Past performance may or may not be sustained in future. Readers should seek professional advice before making any investment-related decisions and alone shall be responsible for any decision taken.

 

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© Kotak Mutual Fund.2022
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
© Kotak Mutual Fund.2022
Mutual fund investments are subject to market risks, read all scheme related documents carefully.