How to manage finances!??? Is one of the question which was like bad nightmares for me in my initial earning days. Then I took initiative to solve it and read a lot of books on it. Hence, I designed one formula to manage my personal finance. I am applying this formula since 16 months and it's making wonder for me.
Are you struggling to manage your hard earned income? Like how much to spend how much to save!
If yes, then read this full article! If No, then also read this full article to know more about my 40:30:20:10 Rule ;)
This formula applies for income range of ₹ 20,000 to ₹ 1,50,000. This formula is totally my personal opinion, your thinking can be different and right in your case.
40 Stands for:
You should limit your monthly regular expenses to 40% of your monthly take home salary. This includes House rent, Food, Electricity, Bills (Recharges), Cosmetics, Petrol, Automobile maintenance and etc.
Calculate now and answer this
Case 1: Your current monthly regular expenses are less then 40%? -> Hi-Fi (You are saving more bucks)
Case 2: Your current monthly regular expenses are more than 40%? -> You need to cut down your expenses
Case 3: Your current monthly regular expenses are equal to 40%? -> Sahi Pakde he! (Written in Hindi - You are going perfectly right)
I am not telling you to compromise with your lifestyle or live life like Kanjoos Baniya (Frugal Guy) but you needs to have calculations in your mind. It will give you more lavish life in long run, trust me.
Where to keep this funds: I have 3 bank accounts and on the 1st date of every month I used transfer 40% of my monthly take home salary in one account and make sure I will utilise this bank account only for my daily/monthly regular expenses. You also can try this.
30 Stands for:
This 30% reserved for, we can say Short term savings or Investment on own-self. The best investment I have made till today is on own-self. Yes, you heard it right. Short term savings means, you are planning trip to Dubai after 8 months then you will utilise this 30% for Dubai trip. 30% includes Holidays, Hobby classes (guitar, dance and many more), special things from your dream list, rewards you give to yourself or family member or friends after achievement. 30% segment is one of my favourite segment of all.
Where to keep this funds: As I have mentioned I have different bank accounts for different purpose. I have one bank account which accumulate these short term funds. Even I prefer to have short period FDs (Fixed deposits) or Liquid funds in mutual funds to get good returns.
20 Stands for:
Spend 20% of your income to repay your installments and for Financial services (Insurance, Mediclaim and all ). Nowadays, we tend to get high value products with 0% interest or with higher interest rate. Don't hesitate! Enjoy your life, be surrounded by latest gadgets but make sure your instalments should not exceed than 20% or your monthly income. For an example you are earning ₹ 60,000 a month. You have limit of ₹ 12,000 for Instalments and your Recurring financial services like insurances, Medicalims and etc.
10 stands for:
Long term investment. Don't touch this funds till you have your worst condition of life or you crossed age of 55 years.
Where to keep this funds: There are lots of genuine options available in market but as I am not financial expert, I can not tell you perfectly. I will share what I am doing for this. I have started SIPs of my 10% funds. You can go for PPF, SIPs, RDs and many more!
40:30:20:10 rule to manage my finances worked for me! Let's hope it will work for you guys also.
If you have any confusion then ask me in comment box!
Till then take care and you can subscribe for this kind of new articles.