50-30-20 Rule of Money - Easy Financial Planning for Beginners - YouTube

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Namaskar, my name is Mukul, and welcome to Asset Yogi.

Friends, who don't want to be rich?

But what should be the most important thing to get rich

Many people think that only business is the way to get rich and

no one can become rich with a salary or regular income

But this is not true.

If you see the statistics or in fact if you see around you,

You'll find many millionaires who are salaried class.

Let's say it took them 20-25 years to become rich but why did they become rich?

Because they had a financial discipline.

They had habits of saving money, investing regularly,

researching, and investing money in the right place.

But when we start our career, many personal finance experts recommend

To keep half of the salary for savings and investments.

Now my salary is only Rs.15,000-20,000 and that's not even sufficient for my expenses

So how can I follow that?

This is very true because youngsters need to fulfill their basic necessities

So because of this, youngsters don't even start savings and investment habit

And it becomes so late to start this habit

that you don't get the compounding effect you might have got

When you start investing early, your money gets multiplied each year

And that's why rich is always rich

I already made a video on compounding effect, kindly watch that video also

And you'll come to know the power of compounding.

If you start saving and investing at the age of 21-22, you can definitely become a millionaire.

You may take retirement 10 years before the one who will start investing 10 years later from now

Because you may have that much sufficient corpus amount

Which can give you interest equal to your income 25-30 years later from now

So that's why it is important to maintain discipline.

Now the framework for the youngsters and experienced people should be slightly different

The same rule cannot be applied to both.

So that's why let's see what is the applicable framework for youngsters and

How much percentage should experienced people save,

how much they can spend on their basic necessities

and how much they can spend on their wishes and wants

If you just started your career then you have to follow this simple rule

Which is the 50-30-20 rule of money.

Now let me explain what does it mean

You can spend 50% of your monthly income in your basic needs.

Now, what comes under basic needs?

Rent or EMI. You can consider the rent of the house in which you are living,

Or if you took a loan to buy that house, you can consider it's EMI

Here you don't have to consider the EMI of any real estate for investment purposes

So only consider the EMI of the house you're living in.

Besides that, food, transportation, clothes all these are obviously your basic needs

Food, clothes, and shelter are the basic necessities in today's time

and even some more basic necessities are added in this modern times.

Which are electricity, water, gas, phone, internet all these are basic nowadays

And I'm not asking you to remain confined till here,

You should decide your own basics

That these are my minimum requirements and I have to spend on these

But try to control the expenses on your needs

and you can spend 50% of your monthly income as the maximum money on your needs.

Let's take an example.

Rs.15,000-20,000 is  normally the starting income nowadays

let's say Rs. 20,000 is your starting income

So 50% of Rs. 20,000 which is Rs. 10,000 is what you can spend monthly on your basic needs.

After this, let's talk about wants. There's a difference between wants and needs.

Wants are your wishes and not your basic necessities.

For example, car is not your basic necessity

you can also go to your office or commute using public transport

Going on vacations and expensive clothes

I took clothes in basic necessities but if you want to buy expensive and branded clothes,

Then it will fall under wants.

Consumer electronics. Like if you want to buy an expensive phone

There's no problem in buying an expensive phone

but control it according to your income or save money for that

After that, you can buy.

So phone, expensive laptop, home theater system

all these fall under your wants and wishes

And for all these, the maximum you can spend is 30% of your monthly income.

So 30% of Rs. 20,000 is Rs. 6,000 per month

That means you can spend Rs. 72,000 yearly on this

And you can decide how to spend those Rs. 72,000.

After these, 20% of your income should definitely be reserved for savings and investments.

Now, why do we do savings and investments?

See retirement is a very neglected area because nowadays people are there in private jobs

And even in government jobs,

the government is terminating the pension schemes nowadays

So retirement planning is really very important.

Education for kids, marriage, emergency fund

which you want to keep for future, medical emergency funds

So for all these, it's very important to start savings and investments right from the beginning.

So that's why I'm saying that when you started your career,

Definitely, you have to fulfill your basic needs and some wants

Because youngsters have desires to wear good clothes and have an expensive phone

So definitely you can spend some money here

but at least keep 20% for savings and investments.

Now, what are savings?

You can opt for normal FD, open a Provident funds account,

invest in stocks, mutual funds, real estate

So there are many options but discipline is very important.

Now if we talk according to this example,

then you should at least reserve Rs. 4000 for savings and investments out of Rs.20,000.

So this was all for those who are just starting their career

But your income increases with your experience

When you'll have experience of 4-5 or 8-10 years,

Obviously, your income would not be the same.

So let's take an example that after some time,

I'm taking a small example not a huge one

Let's say your income is doubled. Although we know that in 10 years,

income gets tripled or even four times in some cases

But we're assuming that your income increased to Rs. 40,000 per month.

So now what you should do? Should you increase your expenses in that same proportion?

No!

Now watch this

50-30-20 rule is very popular but according to me,

As your income increases, you should increase the proportion of savings and investments

It should not happen that you increase the proportion of your wants.

So according to me, you should increase this to 40% and here in place of 30%,

Reduce it to 20%

and here the remaining 40%

I'm going reverse so please pay attention

Changed this to 40%

And now I am focusing more on savings and investments

So when you get your salary or professional income,

first of all, open an account

and transfer 40% of your income for savings and investments.

After that, when you'll be left with limited money,

you'll spend in a limited manner on your needs and wants.

Now let's talk about this example. If we take 40% of Rs. 40,000, it comes out Rs. 16,000.

Now if you were able to manage this section under Rs. 10,000

Then Rs. 16,000 would also be sufficient. In fact, your lifestyle will be improved.

If we find 20% of Rs. 40,000 then it comes out Rs. 8,000.

Earlier you were getting Rs. 72,000 in a year and now you'll get Rs. 96,000 in your wants.

So you can spend nearly a lakh on your wants

But if you increase your savings and investments,

so we get Rs. 1,60,000. Let me write it

sorry its Rs. 16,000 per month

and accordingly your annual savings and investments will get increased very much

Retirement, education, marriage, all your future goals, Medical emergencies

All these can occur anytime and in any number

So you would like to maintain your lifestyle in the future

as well when your regular income will be terminated.

Because you have to maintain a lifestyle after that also

That's why this proportion should be increased.

So initially, we saw that the 50-30-20 rule works well at the beginning of the career,

But when your experience increases, you can change this 50-30-20 into 40-20-40 rule.

Definitely, you won't face problems in managing savings, investments,

retirement planning, education, and marriage of kids.

So I think this concept is clear to you

but the most important thing is to start saving and investing

Whether you start from 10%, it's not any hard and fast rule

that you should have 20% or 30% to invest and not before that

Once you start maintaining a discipline in the starting,

you'll start enjoying it

And if you want to know that how should you do savings and investing

we keep discussing this on Asset Yogi so watch our videos.

Your knowledge and expertise will improve and definitely,

you will be able to accumulate huge corpus for yourself before your retirement