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Financial Planning: Don’t you have money in your hands? Account getting empty after few weeks of salary coming? If so, then you need to make a budget. The government also prepares a budget to keep track of its income and expenditure. For our daily needs and future goals, we all should make a budget so that there is a balance between saving and spending. In the language of personal finance, we call it financial planning. The 50-30-20 formula will be of great use to you in financial planning. After adopting this formula, money will start staying in your bank account and you will be able to achieve future financial goals easily.
What is the 50-30-20 Formula?
In fact, this formula of financial planning is very easy to implement. According to this formula, you divide your income into 3 parts. Divide 50 percent of the income for needs, 30 percent for your wants and 20 percent for savings and investments. Thanks to this, you can use the funds allocated separately for each requirement. With this your expenses will be disciplined. Now know how to divide your expenses into needs, wants and savings.
set aside 50 percent for need
Necessity is something without which it is difficult to live. These include payment of various bills, ration, rent or home EMI, insurance premium, payment of minimum loan etc. Life can be lived happily only by fulfilling these needs.
According to this rule, half of your income should always be spent on such items which are urgent, without which life becomes difficult to live. From this category you should not spend on TV cable or Netflix subscription etc.
Spend maximum 30 percent on desire
Now you will ask what is a want? This category includes things that are not necessary for your normal life. Things that fall into this category include occasional eating out, going on vacation, shopping at festivals, hobby classes, etc. Remember, desires can be innumerable, if you do not control them then your savings can be dented.
save 20 percent
With needs and wants, you can live a better life in the present but through savings you can make your future happy. Saving is important but most people don’t pay attention to it. 20 percent of your income should mandatorily be set aside for savings and investments. According to financial planners, one should save and invest first and then spend. Remember, if you are planning a trip with friends by cutting savings, then it is harmful. Everything can wait, but your savings and investments should remain untouched. There are financial ups and downs in life. Your savings will always come in handy in recovering from this.
What will be the benefit of the 50-30-20 formula?
When you successfully manage your lifestyle, you can set aside more money for savings. After reaching this stage, you should read this rule like this – 50 percent for need, 20 percent for want and 30 percent for saving.
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