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50-40-10 ~ The Simple Paradigm that can change your Financial Well Being!

Ever Wondered how people save, spend and stay wealthy, all at the same time?

Well, here we got something for you to understand the same. Earning more is what we all

dream of. Some people switch jobs to earn more, some wait for promotions and some tend to do multiple Hustles. One thing we all might have noticed is that with earning more, our

standard of living also rises, which means more expenses and soon we start realising that

what we are at, is not enough. 

In this struggle of earning more and spending more in the same proportion or more, we forget to maintain a balance. Many people who earn a lot are still finding themselves struggling with expenses. This is also probably because of the lack of Financial Education and Financial Discipline.

We have a Suggestion for you, which is the rule of 50-40-10 which implies 50% for

Necessities 40% for Saving and Investing and 10% for Luxuries. This is a commonly used

rule for Financial Management and we ourselves have used it with several of our Mentees

and Clients.

Basically, this is a ratio in which you can utilize your income to an optimum level. For

example, say you are earning 1 lakh per month. You can utilize 50k in your necessities which

include food, living, EMIs, essential clothing, utilities, transportation and everything you

need for basic living. Another 40k should form a part of stocks, mutual funds, insurance and

fixed deposits. The last 10k can be your happiness/ dream Spends like vacations, expensive

apparels, perfumes, gifting, parties etc. 

Following this way, you will have around 4.8 lakhs in your savings per year. The Financial

Discipline when executed can help you to consistently increase your Savings and

Investments, and also works as an inspiration to earn more in order to fund your increasing

spends rather than dipping into your savings.

Precautions while applying such rule

  • Bifurcation of expenses into necessities and luxuries.

  • Financial Discipline is mandatory 

  • Excessive control is harmful as well.

  • Be Consistent with the Plan. The Momentum needs to pick up, so that the

  • Compounding Effect can kick in. 

  • Savings matter, Investing Matter. But so do your Dreams. Indulge once in a while!

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