Your dreams can be achieved through the 50-30-20 Rule of Money

Don't know where to start when it comes to saving money? Try following the 50-30-20 rule. You will be able to divide your income into three categories: needs, wants, and savings.

You can apply this rule easily and intuitively. In addition, it works for most kinds of income. By following this simple money allotment rule, many people have found an easy way to reach their dreams.

50% --For basis Needs

Expenditures and bills that cannot be avoided are needs. In addition to rent, utility bills, loan EMIs, grocery purchases, fuel, etc., these expenses include and are not limited to.This list consists only of essentials, and does not include leisure activities such as dining out or getting a streaming subscription. 

A rule of thumb states that half of the income you receive after tax should be used to satisfy your needs. You need to figure out how to reduce spending if you're spending more than this.If you have been recklessly using electricity and water, you may consider moving to a house with a lower rent, or perhaps you can save more on these expenses. Consider using public transportation or carpooling if you own a car less often.

30% -- For the things you Want

Things you spend your money on to improve your quality of life are called wants. Nevertheless, they aren't essentials. For example, going on a trip or having dinner at your favorite restaurant at the weekend falls under 'wants'.If you are spending more than 1/3 of your income on 'wants,' it's easy to reduce them, as they are not essential for daily living. Work out at home rather than in the gym.You can also learn how to cook and avoid eating out. A streaming service allows you to access all content from your computer/laptop without purchasing a television. 

These decisions are also categorized as 'wants' if you desire to upgrade something in your life. If you replace your current car with a bigger one, or you move to a more expensive home than the one you currently live in. In other words, the more effectively you spend on 'wants', the better your savings will be.

20% -- Saving

Your savings and investments must comprise one fifth or 20% of your net income. If you are paying toward your monthly SIPs or making an emergency contribution, it must be included in this 20%. Keeping an emergency fund of at least three months' salary is always a good idea. In the event that you lose your job and cannot find a new one, you may use this money on a rainy day. If your main income has ceased, you can use the money to pay for medical expenses, or to pay your EMIs. 

You should not count loan repayments as savings if you are uncertain about this! In this case, you may take the extra amount out of your savings account if you are able to afford it. You can reduce the EMIs or the repayment period in the future by doing this. 


Using this rule, you can manage your wealth regardless of your income level. Your desires are the thing you have the most control over, the more you can optimize them, the more you will be able to save.
You can also reduce your 'needs' by changing a house or selling a car, and these are typically bigger decisions. Ensure that you are in full control of your income and expenses by following this rule.