RESUME APPLICATION PAY PREMIUM
Fund Performance

Fund Performance

Knowledge Center

Knowledge Center

About Us

About Us

Tools and Calculators

Tools & Calculators

Quick links

Mobile (Download app)
  • Webpages
  • Documents
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment

For NRI Customers

(To Buy a Policy)

(If you're our existing customer)

For Online Policy Purchase

(New and Ongoing Applications)

Branch Locator

For Existing Customers

(Issued Policy)

Fund Performance Check

RESUME APPLICATION PAY PREMIUM

What do you want to do?

Quick links

Mobile (Download app)

Download HDFC Life App

Buy plans, track your policy, make renewal payments & monitor fund performance with HDFC Life App, Download Now!

Apple Logo Go to Google Play Store

Mastering Your Money: The Power of the 50/30/20 Rule

down-arrow
Mastering Your Money: The Power of the 50/30/20 Rule
May 26, 2023

Table of Content

 

Achieving financial stability and independence is often the goal for most people. However, it is only possible with proper financial planning, which begins with the fundamental practice of budgeting. Budgeting is a technique that you can use to make the most of your income and use each penny wisely. It involves creating a detailed plan of your income sources and expenses to identify how much you are saving each month, and how much more you can save.

You can also use the technique of budgeting to plan how much you intend to spend on various expenses. Creating a thorough budget and sticking to it can help you achieve your financial goals quicker by maximizing your savings.

And the 50/30/20 rule can help you create an effective budget.

What is the 50/30/20 Rule?

The 50/30/20 rule is a strategy that’s designed to help you plan your finances better and determine how much to save and spend each month or every year. According to the rule, you need to allocate your in-hand income (after taxes) across three categories — needs, wants and savings — in the following manner.

  • 50% of your net income goes towards fulfilling your needs
  • 30% of your net income goes towards your wants
  • 20% of your net income goes towards savings and investment plans

By giving you clear instructions on how to allocate your net income, the 50/30/20 budgeting rule allows you to cultivate financial discipline without compromising on your lifestyle in any way. Strictly following the rule may even help you achieve your financial goals and create wealth over the long term.

Let’s now take a closer look at the three categories of the 50/30/20 budgeting thumb rule and what they entail.

Needs: 50% of Your Net Income

Needs; represent the basic expenses that you require for survival, like food, clothing, shelter and the link. Since it is crucial to first take care of your basic needs, the rule requires you to allocate about 50% of your net income towards such expenses. Some examples of costs that are classified as needs include the following expenses:

  • Groceries
  • Food
  • Clothing
  • Shelter
  • Electricity
  • Rent
  • Home loan and educational loan obligations
  • Insurance premiums

Wants: 30% of Your Net Income

Wants represent expenses that are not absolutely required for your living. In other words, all of the expenses that are considered luxuries or discretionary would fall under this category. Since these expenses are not essential for your survival, the rule requires you to allocate only about 30% of your net income. Some examples of discretionary expenses are classified as wants include the following:

  • Shopping expenses
  • Travel
  • Dining out
  • Entertainment

Savings: 20% of Your Net Income

Despite accounting for just 20% of your net income, the most important component in the rule is the portion of your income that goes towards savings and investments. The money that you set aside for this component should ideally be invested in investment plans that are aligned with your life goals.

For instance, you can invest 20% of your after-tax income in different assets and investment options like direct equity, debt, government-backed schemes and securities, life insurance savings plans and even real estate.

Additionally, you should also aim to allocate a small portion of your savings towards an emergency fund. This will help you tide over unforeseen expenses without having to dip into your savings.

Conclusion

There are many variations of this fundamental budgeting rule. Instead of the traditional 50/30/20 percentage, you can even allocate your net income on a 50/20/30 or a 70/20/10 basis. The bottom line in any effective budgeting rule is that by reducing your discretionary expenses and increasing your savings, you can accelerate the wealth creation process.

Related Article

ARN - ED/05/23/2091

Term Plan Articles Term Plan Articles

Investment Articles Investment Articles

Savings Articles Savings Articles

Life Insurance Articles Life Insurance Articles

Tax Articles Tax Articles

Retirement Articles Retirement Articles

ULIP Articles ULIP Articles

Health Plans Articles Health Plans Articles

Child Plans Articles Child Plans Articles

Popular Calculators Popular Calculators

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

LinkedIn profile
Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

LinkedIn profile
Reviewed By Reviewed By:

Here's all you should know about life insurance.

We help you to make informed insurance decisions for a lifetime.

How Rising Interest Rates Impact Your Investments—and What You Should Do About It

How Rising Interest Rates Impact Your Investments—and What You Should Do About It

How rising interest rates impact your investments and ways to adapt. Stay informed to make smarter financial decisions and protect your financial future.

Preserving Your Investment: How New Tax Rules Affect Real Estate Sales Before 2024

Financial Freedom for Women Entrepreneurs: Unlocking Success with the 50-30-20 Strategy

Baby Steps to a Secure Future: Financial Planning and Wealth Management

Essential financial planning and wealth management strategies for families. Secure your future and confidently navigate parenthood with these key insights.

Baby Steps to a Secure Future: Financial Planning and Wealth Management
4 Things to know for Building your Financial Reserves Previous
5 Tips to Invest Smartly Today for a Better Tomorrow Next
HDFC life
HDFC life

HDFC Life

Reviewed by Life Insurance Experts

HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER

We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

Popular Search

Popular Searches