Every one shold  use the 50/20/30 guideline as a general rule in our  budget. Says T. Suresh babu,Experienced Financial consultant from Hyderabad.  Since everyone’s financial situation is different. It keeps things simple – seriously it boils down to only three numbers We have to remember, versus a million of tiny categories! Plus, it makes it extremely clear where your finances are out of alignment and allows you to tweak accordingly.

T. Suresh babu ellobrates this rule of 50/20/30 much  deeper.

What  does 50/20/30 stand for?

Basically a super simple three number budget. 50% of your income goes towards “needs,” 20% goes towards “goals,” and 30% goes towards your “lifestyle.” Meaning you only have to remember three numbers versus how much you’ve allotted for smaller categories like “entertainment” or “meals out.” It keeps things easy and allows you to go with the flow throughout your day-to-day life.

How To Apply The 50/20/30 Guideline:

1) Start by looking at your total income.

For this example I’m going to use the millennial average of Rs 12,00,000/- per year

2) Divide your annual income by 12 to get your “monthly” take home

Example: Rs 1,00,000/- per month

3) Take your monthly take home number and multiply by .5 to get your “needs” number

Example: Rs 50,000/-

4) Take your monthly take home number and multiply by .2 to get your “goals” number

Example: Rs 20,000/-

5) Take your monthly take home number and multiply by .3 to get your “lifestyle” number

Example: Rs 30,000/-

This gives you a 3 number budget where you can just tick things off until you’re left with zero every month. This is especially handy when it comes to your lifestyle expenses since you won’t have to track every little thing.

It’s a similar concept to the old “envelope” days of budgeting; where you create a different envelope for each category, place your budgeted amount for the month in cash in the envelope, and then just pull from the envelope throughout the month.

So to continue with the running example, you’d put Rs 30,000/- in an envelope for fun stuff that month, and go out to eat and enjoy all the concerts you want until that envelope is empty! Much easier than tracking a specific budgeted number for “entertainment,” “subscription,” “meals out,” etc.

Here’s why  the 50/20/30 guideline is so great:

As a general rule of thumb, you don’t really want to spend more than half your income on needs (rent, insurance, utilities, etc.). If your rent alone is taking up 60% of your paycheck, then you need to increase your income or find a new place to live! Hence why I say this is a great rule of thumb – it makes it super clear where things are “out of alignment” in your spending without getting into tons of complicated categories and numbers.Suresh continues

The problem with the 50/20/30 rule:

As Indivisulas, our debt or living expenses often far exceeds our income. Which is why I recommend tweaking this to meet your unique situation, and also having an understanding of good debt and bad debt and which type you have. Most people put debt or student loans into their “goals” number, so maybe your budget will look like 55/25/20.

50/20/30 Guideline and Debt:

Like I said, it’s no secret that millennials are getting the short end of the stick when it comes to finances. Between student loans and insane cost of living, most are struggling to get out of debt, boost their credit score, and finallyyyy live their best life.

With that said, since most people recommend putting debt in the “20” of financial goals – that might not be your best move. When you get this rough number breakdown for yourself, look at where it’ll put you in your debt repayment process. 

Suresh Babu suggests two normal questions that comes to normal individulas mind and its answers.

Q1: Where does food fit into the budget? Is it a need or lifestyle expense?

Since we can always spend more *or less* on food, I’m going to say it’s totally up to you! It’s both in your needs and in your lifestyle.

Example: If you break down your salary into the 50/20/30, and add up your rent/mortgage, utilities, insurances, etc and are already over your “50” number, then maybe put food into a lifestyle expense or do a 60/20/20 breakdown. If you add all those things up and are coming in under you “50” number, then use whatever is left over for your groceries, and then any money you spend beyond that on meals out or splurges will go into your lifestyle number.

For instance, when I’m budgeting my life like a champ, I only spend Rs 2000/- per week on food for myself. That’s an easy “hard” number to put in my “needs.” On the flip side, I’ve worked with life coaching clients who spend $500 a week on food. – Hence it’s a personal journey. Since everyone has different thoughts and opinions I really encourage you to make your budget, and then see where this would fit for.

If you really want my recommendation though, I’d say put your *essential* grocery items in your “needs” (50%) and then any meals out or indulgences go into lifestyle (30%). This is honestly the trickiest part of the budget IMO, and once you’ve decided where/how you want to deal with food it’s smooth sailing!

Q2 UGH! I’m trying to make this work, but every way I play with the initial numbers I’m still going over my expenses! How am I supposed to budget if I can’t make this work?!?

If you can’t make your budget work in this guideline with some mild tweaks, it’s definitely time to make a change! Start selling your stuff, take a long, hard, *critical* look at all your subscriptions and “lifestyle” choices and figure out what you can nix. Remember, a retailer isn’t going to help you retire in the style you want – so stop giving them your money and start investing in yourself with the help of professionals.