The 50/30/20 Budgeting Rule

This is a pretty straightforward and simple rule for effectively managing your hard earned money. Whatever way you earn whether it be salary or other income, divide it into 3 categories:

- 50% for your needs: e.g. food, rent, transportation, etc.

- 30% for your wants & luxuries: e.g. eating out, shopping, vacations, etc. 

- 20% for savings or paying back your debt 

If you can do this consistently for a year, you will see the change yourself. 

The 40/40/20 Rule 

Well, who would say “NO” if we said there is a quicker way to get rich. Well, if you feel that it is taking a bit longer to achieve financial freedom with the 50/30/20 Rule, try this one!

Use your monthly income as follows:

- 40% Save and invest for the future

- 40% Use for your needs and essential expenses

- 20% for everything else

This rule truly goes by the principle of this quote by legendary Warren Buffet: 

“Do not save what is left after spending, but spend what is left after saving.”

The Rule of 72

This is a shortcut or a rule of thumb to estimate how long it will take for the money to get doubled if the money is invested in something that gives a fixed return e.g. Fixed Deposits. 

How do you do it? 

Just divide 72 by the interest rate you will receive on the investment. 

E.g., if you invest ₹1,00,000 in an FD at an interest rate of 10%, it’ll take you (72/10 =) 7.2 years to get your money doubled!

So, it takes years to double the money! There is no shortcut. 

The bottom line: 

Make your money work for you! You can’t be rich by just working hard for money!

And to do that, you must know how your money comes and goes. 

Start recording your money flow in Khatapana and you will be in a much better position to follow the above rules!