Golden Rule of Money Management

Before reading this blog, read “How to determine your financial goals”.

So, I hope that you all have set your financial goals as per your lifestyle.

So now let us know the second way to achieve financial freedom, which is money management.

So, let’s get started.

If you want to know why finance problem is coming, Read this blog “https://abinashsahoo.com/why-do-people-always-face-financial-problems/“.

List of contents -:

1. Summary of the financial goal set

2. What is Money Management?

3. What is the 20-30-50 rule?

4. Does this rule work for everyone???

5. My opinion on this

1. Summary of the financial goal set.

Setting financial goals is the first step to achieving financial independence and solving financial problems. We all set our daily life goals and also financial goals. But we do not follow this one process, hence we always have to face the problem of finance. But if we set these 3 types of financial goals in our life, then we will never have to face financial problems.

These are the 3 ways in which we can set our financial goals.

1. Very short-term goals – goals for 2-3 months

2. Short term goals – goals for 1-5 years

3. Long-term goals – goals for 5 to 10 years or more

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2. What is Money Management?

Money management refers to how you handle all your finances, from budgeting to investing, saving and setting goals.

Money management is the second step to achieve financial independence and solve our financial problem.

Example -:

Abinash is working in a company. He gets his salary after the end of the month. After receiving the salary, he manages his money as per his setted finance goals.

So, I think you can understand what Money Management is. but after reading upto this your head will start spinning.

But why,

Because we know how we can manage our money according to our goals, but we do not know how much money should we give for which goals?

So, here’s an excellent rule for all of us.

20-30-50 rule

3. What is the 20-30-50 rule?

Start with the same example,

Abinash works in a company. He gets his salary after the end of the month. After getting salary, he keeps his money as per his set financial goals but he does not know how much money he should keep for which goal.

Abinash thought

His very short-term goal is his need i.e. daily expenses for living.

His short-term goal is his want.

Their long-term goal is their investment.

So, in this way we can keep our money according to our needs, wants and investments.

Of our 100% salary, we keep 20% for investment, 30% for wants, 50% for needs.

For example,

Abinash’s salary is Rs 20000/month.

Kept for 20% investment means 20% of Rs 20000 = Rs 4000/-

Kept for 30% want means 30% of 20000 = 6000/-

Kept for 50% need means 50% of 20000 = 10000/-

The money that we have for investment, 20% and 30%, we will not touch that money if there is no important and any urgency work.

The money we keep for needs only for spent.

So, we are indirectly saving Rs 10000 for our future. And now we know how much money we have and how much we spend with that money.

If we keep doing this then finance related problems will not arise and gradually, we can achieve our financial freedom.

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4. Does this rule work for everyone???

Answer is No.

20-30-50 rule is only for beginners i.e. those who have recently started their earning. When we get experience in work, our earnings also increase. So this 20-30-50 rule will also change.

We can increase our investment portion and increase our need portion(30%) and decrease our need portion(50%).

But why so?

Our earnings increase but in between our daily expenses do not increase at that rate.

For example: 

If today the rate of tomato is Rs 30 per kg, then after 2 to 3 years it will remain only Rs 5 per kg or the same Rs 30 per kg.

5. My opinion on this.

This era is the era of opinions, everyone can share their opinions freely. So my opinion on this money management rule 20-30-50 rule is the best finance rule for beginners. 

I am also following this rule because now I am also a beginner. But to become financially independent, I have been following this rule continuously. If someone leaves this rule midway then he cannot achieve financial freedom.

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Did anyone already know this money management rule, comment me. 

Leave me your opinion on this blog in the comment section.