How to save and invest your monthly salary - the 50/30/20 rule

Do you likewise struggle to save a portion of your monthly salary for your future? Have you become a normal customer of Netflix, Zomato, etc.? If indeed, then this amazing 50/30/20 Rule will end up being beneficial to take care of your financial life and secure your future.

The 50/30/20 Rule

It underlines the legitimate allocation of your monthly income towards different components. It states the upper roof for needs, wants, and savings, in which 50%, 30%, and 20% of your net income respectively. Let's plunge further into different components and try to dissect them in a better manner.

Monthly Income

The first and foremost step of applying the rule is to determine your monthly income. Your gross salary includes retirement benefits, Provident Fund contribution, perquisites, etc. But the government can take away up to 30% of your salary if you haven't done tax planning perfectly. Thus, it is important to think about the salary after deducting the estimated tax for it.

Necessities and Needs

These incorporate the essential costs like accommodation, food expenses, essential travelling, internet, child education, and a lot more without which it becomes difficult to survive. The COVID-19 pandemic made us realized the importance of health too. In this way, life and health insurance are covered also in the necessities portion of your expenses. Although they are essential for living, they must not surpass half (50%) of your monthly income.

Wants

They are the things that don't impact your life but are wanted by everybody. The best example are the Netflix and Amazon subscriptions. As indicated by the rule, your wants should not surpass 30% of your monthly income.

Savings

It is rightly said, "RICH People plan for three generations, POOR People plan for the ends of the week." Saving cash is the first step to your financial freedom. If you cannot set to the side your cash, then investing it isn't some tea. As indicated by this rule, you should save at least 20% of your income.

The government too realizes the importance of savings. That is the reason it has enacted the Employee Provident Funds Act, as per which at least 12% of your salary is to be deducted mandatorily. What's more, the employer needs to contribute a similar amount! What's more, you can even acquire interest @ 8.5% on the total amount, which can be made exempt from tax!!

How to apply the 50/30/20 Rule?

After understanding the rule, it is additionally essential to know how you can apply it effortlessly. Just realizing it won't take care of your concern, will it? The accompanying steps can be adapted:

Maintaining an Expense Budget

The most effective path is to make a budget about the income and costs. The costs ought to be categorized into needs and wants and recorded and investigated. If you don't have the opportunity to do as such, then a cost tracking app like ExpenseBit can be your guide.

Creating an Investment Portfolio

Only saving doesn't help in accomplishing financial freedom. The rampant inflation will steadily diminish its value and put forth your attempts to no end. Therefore, it is important to create a legitimate investment portfolio to beat inflation and bring in cash even while snoozing.

The best investment to get exceptional yields is in the stock market. Notwithstanding, if you don't think about it, you can invest in Mutual Funds too. The returns procured from them will be a lot higher than depositing into Bank FDs and will push you towards your objective of having financial freedom.

Generating Passive Income

The foundation of the 50/30/20 Rule is your monthly income. Why sacrifice your wants when you can expand your profit? Passive income is the best approach to bring in cash in any event, when you are not working. Here are some fascinating plans to get freed of the income constraints:

Invest in Real Estate

Besides getting capital appreciation, you can likewise procure monthly rent. Regardless of whether you take it borrowed, it will supplement your income over the long haul, besides having a wise investment.

Content Development

Today's time is the period of content. If you have the energy and the abilities to create content, you can monetize it to build your income. For instance, teachers can sell online courses on websites like Udemy and Coursera, favorable to gamers can open a YouTube channel and bring in cash by Google AdSense, experts of a particular field can create blogs and youtube channels, etc.

Affiliate Marketing

If you have sufficient reach as an influencer, you can bring in cash by promoting the products through affiliate marketing.

"If you don't stop buying things you don't need, then you soon will be selling the things you need."