Life is much easier when you have good financial skills. It totally depends on your management on how to spend money. The household budget – it is one of the most challenging phases of each and every family. Between necessities, luxuries or financial security, we face challenges in Budgeting.

Necessities would include that are unavoidable or which has to be done for living. Such as monthly installment, school fees, grocery, medical insurance. Spending on luxuries could be spending on eating at restaurants normally and buying the latest gadgets. A person who manages his or her budget gets in confusion as to how much he must spend on these to get his perfect budget out if it.

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There is a thumb rule which is the key solution for Managing Money.

Let’s know what is Thumb rule

Thumb Rule – For Managing Money

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  • Thumb rule is a budget rule which is an initiative and a simple plan to help people in managing their money. It helps people to save their money for emergencies and retirement.
  • This rule is called as 50/30/20 which means 50% on needs, 30% on wants and 20% on savings.

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Thumb Rule in detail

Thumb rule divides your expenses into 3 categories- needs, wants and savings.

50% needs –

needs are those expenses that you have to pay and must keep in your budget. Needs include housing, transportation, groceries, health care, insurance. Even minimum debts and utilities. These things are necessary for survival. This category includes which are must to be spent and not the extras for spending money.

Half of after-tax income should be needed to cover your needs. If you are spending more than that, then you need to cut down your lifestyle a bit to get into that fit.

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30% Wants

Wants are those expenses which choose to spend your money but that is not essential for living. This expense is totally on your will of wants. It includes d ing out and movies, vacations, buying latest gadgets, spending on expensive gifts for others, memberships, etc. Sometimes, this category could also include upgrade decision on costlier things. So wants are the extras on which you spend money to make life enjoyable. It’s not the thing by which you cannot live without.

20 Savings –

And finally Savings that you you keep aside for future. Try to allocate your 20% of your net income to savings. This money can be used for emergency fund and for retirement. A person should have atleast three months of emergency savings so that in case if you lose your job or received heavy loss in business. And if you want to save more money, you can keep aside some of your wants.

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So, 50/30/20 rule teaches you the correct way of spending and the management of money a person must keep. Everyone should prioritise creating an emergency fund in case of job loss , etc. And work accordingly on your needs and wants.

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Thus , a person must keep in mind this rule while planning for the budget. It is obvious that high income earners manage their budget by investing more on wants and everyone do it differently. But a person who is in confusion of managing his or her money must follow the thumb rule. Life must be enjoyed, it’s not just about savings, but a plan like this will help you out managing your money.

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