DIY Financial Plan step 2:
How to set your budgeting with 30-30-30-10 rule?
DIY Financial Plan step 2:
How to set your budgeting with 30-30-30-10 rule?
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How to set your budgeting with 30-30-30-10 rule?
20-Jan-2024
Introduction
Introduction
In the last blog, we introduced you to the 30-30-30-10 rule of budgeting. In case you missed it, here is the link. It will be useful for you to understand that first, before reading this further.
Great! Since you know the reference now, let’s dive deep into why this rule starts making more sense with time compared to the 50-30-20 rule.
Changing priorities over time
Changing priorities over time
Indians usually start their corporate journey around the age of 23 or 24 and get married around the age of 28. During the 4-5 years of bachelorhood, you're likely spending more on personal experiences, enjoying life to the fullest with fewer responsibilities.
As per 50-30-20 rule of budgeting, you are spending 30% on your wants and 20% towards savings.
After marriage or as you grow in life, your priorities & mindset shift and you start giving greater importance to security and family needs. You want a nice & comfortable home 🏡, a family car 🚘 and you start thinking about kids’ education 🧑🎓to cope with the day-by-day increasing cost of education.
These become your goals in life, prompting a shift in your financial strategy. That is where one plans to invest more money than before. And it is no compulsion. While sticking to the 50-30-20 rule is still a good option, if you relate to this new mindset, consider increasing savings from 20% to 30%.
Let's understand this with an example
Let's understand this with an example
Priya, 29 gets married to Dhiraj, 30. They both earn around Rs.2,80,000/- per month (together) living in a Tier-1 city.
Following the 30-30-30-10 rule of budgeting & expense tracking,
Their LIVING expenses, including rent and groceries, should be capped at Rs. 84,000/-.
With LIABILITIES such as supporting Priya's father (Rs. 20,000) and Dhiraj's education loan EMI (Rs. 40,000), they still have Rs. 14,000 left to spend wisely under this bucket.
Next, they should aim to INVEST 30%, i.e. Rs. 84,000.
Where to invest? How to invest? What shall be the asset-allocation? We will talk about all this in our upcoming blogs.Allocate the remaining 10%, i.e., Rs. 28,000, for GUILT-FREE personal SPENDING on trips, dining out, or personal indulgences.
Now, this sounds like a realistic plan. And let me share the result of this plan 5 years down the line!
Investing Rs.84,000/- every month for the next 5 years, increasing this investment every year by 10% (because both will get their yearly salary increments) and considering an average yearly return of 10%, they will be accumulating Rs.78 lakhs by the time Dhiraj reaches 35.
That’s how wealth is built. All it requires is self-discipline and consistency.
You can refer this to video as well to understand the concepts of this budgeting rule in detail!
Tracking your expenses
Now, the challenge lies in distributing this monthly income and keeping track of expenses. The answer is SMS tracking apps (like Axio).
Thanks to the digital era, we are now making all our payments online.
Divide your income into these 4 buckets,
Let you & your partner make spends from your respective bank accounts for the whole month keeping in mind the budget.
At the end of the month, sit together and review your combined expenses.
I promise you, that doing this for the next 3 months will give you a fair idea about your monthly expenses and your savings appetite.
Good luck with this budgeting & expense tracking technique! Hope this information proves useful!
Your budgeting is sorted now! In our next blogs, we will dive into the world of must-have insurances!
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