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Getting your first pay check is a thrilling experience when you start your first job. A natural tendency is to spend it on gifts, pamper yourself, and pamper others. But sooner rather than later, you will have to start saving for your future. As per industry pundits, you should start saving as soon as you start earning. You can consider Mutual Funds as an investment option. So how much should you invest to begin with?
50:30:20 Rule
According to industry standards, you should implement the 50:30:20 rule for bifurcating your after-tax income:
50% on Needs –
According to the rule, 50% of your after-tax income should be used for your needs. A need is anything that can’t be lived without. Payments you cannot skip – rent, electricity, water, EMIs, groceries, etc. You cannot compromise on these expenses. Spending more than 50% of your salary on needs will require you to revisit your lifestyle and make changes, such as downsizing, driving a modest car, or car pooling, or reducing your use of credit cards.
30% on Wants –
It’s a desire to spend money on things that aren’t absolutely essential, but are for entertainment or to improve the quality of life. Wants include dining out or going to the movies, vacations, gym memberships, and multiple OTT subscriptions. Try and limit your wants to a minimum so that it falls within the 30% threshold. If at any point it exceeds this threshold, then it’s a red flag to revise your wants list. Before you indulge in your wants, plan and save for them.
20% on Savings –
Savings should comprise 20% of your remaining after-tax income. To start saving for retirement and achieving your long-term goals, first create an emergency fund to cover at least three to six months of your expenses. You can consider investing a portion of your savings into Mutual Funds after taking the advice of a Financial Advisor. Further, do note that you can reap the benefits of compounding by staying invested for the long term.
Following the above rule for bifurcating your after tax income and following a sound investment plan will help you build a robust corpus to deal with life’s challenges. Regardless of how unexpected life is, being prepared enables you to deal with it confidently.
Start your personal wealth journey with us today!
Plan to Maximize Your Retirement Years
October 4, 2018
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Getting your first pay check is a thrilling experience when you start your first job. A natural tendency is to spend it on gifts, pamper yourself, and pamper others. But sooner rather than later, you will have to start saving for your future. As per industry pundits, you should start saving as soon as you start earning. You can consider Mutual Funds as an investment option. So how much should you invest to begin with?
50:30:20 Rule
According to industry standards, you should implement the 50:30:20 rule for bifurcating your after-tax income:
50% on Needs –
According to the rule, 50% of your after-tax income should be used for your needs. A need is anything that can’t be lived without. Payments you cannot skip – rent, electricity, water, EMIs, groceries, etc. You cannot compromise on these expenses. Spending more than 50% of your salary on needs will require you to revisit your lifestyle and make changes, such as downsizing, driving a modest car, or car pooling, or reducing your use of credit cards.
30% on Wants –
It’s a desire to spend money on things that aren’t absolutely essential, but are for entertainment or to improve the quality of life. Wants include dining out or going to the movies, vacations, gym memberships, and multiple OTT subscriptions. Try and limit your wants to a minimum so that it falls within the 30% threshold. If at any point it exceeds this threshold, then it’s a red flag to revise your wants list. Before you indulge in your wants, plan and save for them.
20% on Savings –
Savings should comprise 20% of your remaining after-tax income. To start saving for retirement and achieving your long-term goals, first create an emergency fund to cover at least three to six months of your expenses. You can consider investing a portion of your savings into Mutual Funds after taking the advice of a Financial Advisor. Further, do note that you can reap the benefits of compounding by staying invested for the long term.
Following the above rule for bifurcating your after tax income and following a sound investment plan will help you build a robust corpus to deal with life’s challenges. Regardless of how unexpected life is, being prepared enables you to deal with it confidently.
Start your personal wealth journey with us today!
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