The budget is not simply a recording of income and expenditure. It is a tool that helps you manage your income and financial life. The 50/30/20 rule budget only requires you to track and divide your expenses into three main categories: needs, wants, and savings or debt. This reduces the amount of time you have to spend detailing your finances and allows you to focus more on the big picture instead.
According to this thumb rule:
- 50 percent of the earnings after tax should be used towards necessities.
- 30 percent of the money should be spent on luxuries or wants / desires.
- 20 percent money should be saved and invested towards your financial goals.
- Emergency Fund - your minimum 6 months expenses or minimum 3 months salary.
