Money Saving Formula: In today’s world, a common complaint among salaried individuals is that the burden of expenses starts piling up just a few days after receiving their salary. Rent, groceries, bills, children’s school fees, and daily necessities consume the money so quickly that they don’t even realize where it all goes. As a result, by the end of the month, there are neither savings nor investments left. If this situation persists for a long time, it can pose a significant threat to future financial stability.
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Financial Discipline is Essential
Ravi, a financial and mutual fund expert from Ranchi, explains that managing money correctly is more important than earning a high salary. If a person creates a clear financial structure from the beginning, savings and investments are possible even with a lower salary. With this in mind, he advises adopting the 60-20-10-10 formula, which is very simple and effective for ordinary people.
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What is the 60-20-10-10 Formula?
This formula is a method of dividing your salary into four parts. The first part is 60 percent of the salary, which is allocated for essential expenses. This includes house rent, groceries, electricity and water bills, transportation, children’s education, and other mandatory expenses. Creating a strict budget is crucial to avoid unnecessary spending.
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Secure Your Future with Long-Term Investments
The second part of this formula is 20 percent of the salary, which is allocated for long-term investments. This can include retirement planning, mutual funds, pension schemes, or other long-term financial products. This portion forms the basis of future financial freedom and stability.
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Why are Short-Term Savings Important?
The next 10 percent of the salary is set aside for short-term savings. Unexpected medical expenses, vehicle breakdowns, or other emergencies may require immediate funds. In such times, an emergency fund or general savings prevents the need for borrowing and reduces mental stress.
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Spending on Yourself is Also Important
The final 10 percent of this formula is for personal happiness and hobbies. This includes traveling, eating out, buying clothes, or engaging in any favorite activity. Experts believe that when a person is mentally happy, they are better able to achieve their financial goals.
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Make the Rule Stricter as Your Salary Increases
Ravi explains that as income increases, the portion allocated to investment and savings should also be increased. The goal should be to keep expenses limited and direct the extra money towards investments. This provides significant financial benefits in the long run.
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Exceptions for Bachelors and Those with Low Expenses
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If a person has fewer needs or is single, they can allocate 50 or 40 percent instead of 60 percent for essential expenses. This formula is flexible, but the condition is that the chosen ratio must be strictly followed.