Investment Tips: In today’s times, rising inflation has disrupted the budgets of ordinary people. Even a person earning Rs 60,000 a month is wondering how to manage expenses and save for the future. However, by adopting the right strategy, one can not only use money wisely but also build a corpus worth crores by retirement. Ankur Warikoo, a popular financial YouTuber, has provided a simple solution to this problem, known as the 65-20-15 Rule.
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How the 65-20-15 Rule Works
If someone’s monthly salary is Rs 60,000, then according to this rule, the first 65 per cent, i.e. Rs 39,000, should be set aside for essential and fixed expenses. This includes rent, electricity and water bills, rations, children’s fees, medical expenses, and other essential needs. It’s not always possible to reduce these expenses, so it’s important to organise them in a plan.
After this, 20 per cent, or ₹12,000, should be set aside for favourite things. This could include travel, movies, new clothes, gadgets, and other personal expenses. This allows for managing life’s pleasures without stress.
The remaining 15 per cent, or ₹9,000, should be set aside each month for savings and investments. This amount can create a fund worth crores in the future.
Why Savings Is the Most Important Component
Any financial plan begins with checking your loans. If you have outstanding debts, such as home loans, personal loans, or credit card balances, these should be paid off first. The interest on debt compounds rapidly, impacting savings.
After paying off debt, the next step is to create an emergency fund. This fund should be equivalent to three to six months’ salary and can be kept in a savings account or liquid fund. This fund helps in case of job loss, illness, or unexpected needs. Liquid funds allow for quick withdrawals and offer better returns than a regular savings account.
Where and How to Invest
Once debt and emergency funds are alleviated, the ₹9,000 saved each month can be invested. Index funds are considered the best and easiest option for this. They are based on indexes like the Nifty 50 and Sensex, where investments are made across the entire market, eliminating dependence on any single company.
If ₹9,000 is invested monthly as a SIP and an average long-term return of 13.5% is achieved, this amount can reach ₹1 crore in approximately 20 years. Only ₹108,000 will be invested in the first year, but due to the effect of compounding, interest on interest accrues over time. The amount can grow to 20 to 25 lakh rupees in 10 years, over 50 lakh rupees in 15 years, and nearly 1 crore rupees in 20 years. This fund can be used for larger goals like retirement, children’s education, or buying a house.
When to start and why it’s important to be consistent
If a person starts following this rule at the age of 30 to 35, they can achieve financial independence by the age of 50 to 55. This means that even after leaving their job, they can live comfortably and manage major expenses. It’s important to keep in mind that interruptions in investment, unplanned expenses, or abandoned savings can ruin the entire plan.
Note: It’s always beneficial to consult your financial advisor before making any investment decisions.