New Delhi. Budgeting is the most important step to achieving your financial goals and maintaining financial stability. Often people have trouble deciding how to use their income properly. In such a situation, the 50/30/20 rule provides a simple and effective solution. This rule divides your income into three parts—essential expenses, desires, and savings—so that you can control your expenses and ensure financial security for the future.

This rule is not only easy to understand, but it is also very flexible to adopt. No matter how much your income is, this framework can work for you. Under this, you can organize your expenses according to your priorities and needs. By following this rule, you can spend your income in a balanced way and also move towards reducing debt by giving priority to savings.

What it means
50% spent on necessities: rent, ration, transport, and other essentials.
30%spentd on desires: entertainment, shopping, and other hobbies.
20% savings and debt repayment: emergency fund, investment,s and loan repayment.

Steps to follow the rule
Calculate income: Determine your monthly after-tax income.
Categorize expenses: Divide into needs, wants, and savings.
Balance expenses: If wants are costing more, cut them.
Implement automation: Set up automatic transfers for savings and debt repayment.
Review: Reevaluate your plan from time to time.

Benefits
Simple and flexible.
Prioritises savings.
Ensures balanced spending.
Helps reduce debt.

Challenges:
Compliance with 50% is difficult in expensive cities.
Limiting expenditure on desires is challenging.

For example,
if your monthly income is Rs 50,000, keep Rs 25,000 for your needs. Keep Rs 15,000 for your desires which are not very important but are useful. Rs 10,000 can be used for saving/paying off debt.