How to budget, save and make money | 50–30–20 rule


Intro mixed with some wittiness

I pity day traders.

Don’t get me wrong. My point is the amount of work that they do on a daily basis — buy, sell, call, put. The constant panic to click just at the right moment to minimize their losses and maximize their profits? I mean, damn.

However, as I go deeper into this topic, I fear many do not talk about the fundamentals of investment — that is, budgeting.

What is budgeting, how to do it and how can that help you to accomplish your needs, desires and investing? Let’s find out.

Photo by Towfiqu barbhuiya from Unsplash

Story time

Yesterday, when I was driving back from the gym with a friend, he asked me, “Dude. When we get salary or when we get some money, how do we allocate it? Do you have any tips?”

Well, he did ask about tax saving as well but that’s a topic for another day.

My point was he was right. We have to pay our bills, pay for food, pay for transportation, pay for those damn good iPhones, sexy watches, vacations and everything.

So, today, I am going to share a very basic budgeting principle today. However, I have a small plot twist.

Disclaimer: I am not perfect. I make mistakes when I budget and try to save money as well. But, I try to keep learning from my mistakes and keep moving forward. I think that’s the best that we can do as human beings — try to be better.

The main deal

You might have heard about the 50–30–20 rule. It is a very good start into budgeting, especially when you are just starting. If you have not, I am going to get into it right now. However, I feel that once one gets into their late 20s or 30s, following this 50–30–20 rule might not give you the same amount of returns as what I am about to talk to you about.

First of all, what is budgeting? Simple, whatever income you get, you make expenses with that.

Now, those expenses can be divided into 3 main categories.

  1. Needs — something that we need to spend on; eg: house rent, electricity bill, loan EMI, etc.
  2. Wants — things that you desire; eg: vacation, new phone, new watch, new console, games, books, etc.
  3. Investments — money that you want to save

Now, using this process, we can make a mental model on how much to invest. It’s pretty basic.

It says:

  1. 50% of your salary should go towards your needs
  2. 30% should go towards your wants

No prizes for guessing where the remaining 20% should go to. 😋

However, yes. You guessed it right.

3. 20% should go towards your investments

So, if you have just started earning and started getting an income, 50–30–20 rule is an excellent place to start at. However, within the first 5 years, this rule starts failing.

I will tell you why.

Because, your needs won’t go at the same rate as your income, right? You might want to increase your expenses in the first 5 years. However, there will come a point, where your needs will grow at a much slower rate than 50%.

However, if you do keep pouring money into your needs at 50% more than what you were doing in the previous year, you will definitely think of a way to spend that newly allocated money. And, you will finally not be able to save enough money for your “retirement.”

So, what’s the solution?

A new way

It’s a very simple way of thinking about it but people usually don’t. For the life of me I can’t remember the term for it so I renamed it. I call it: forced frugality.

If you allocate your money to savings and investments before you make any other expenses, you will be forced to make economical choices and maintain a better relationship with your finances in a disciplined manner.

I can almost hear you say, “Just cut to the chase, bro!”


The new rule says this:

First year — Follow 50–30–20 rule for your budgeting.

Second year — The increment needs to be allocated in 50–30–20 rule however, this time:

  1. 50% of the increment goes towards your investments
  2. 30% of the increment goes towards your wants
  3. 20% of the increment goes towards your savings

Let me give you an example. I am Indian so I am going to be primarily using Indian currency.

An exemplary example

Let us assume that you make ₹ 50,000 (~$ 650) per month.

₹ 25,000 (~$ 325) goes towards needs such as bills, loans (not credit cards), groceries, etc. ₹ 15,000 ($ 195) goes towards your wants and ₹ 10,000 ($ 130) towards your investments.

Now, assume that you get a pay raise and your new salary next year is ₹ 57,500 ($ 747.5) . So, the raise of ₹ 7,500 ($97.5) should be divided according to the new rule.

₹ 3,750 or $ 48.75 (50% of ₹7,500) should go towards your investments.

₹ 2,250 or $ 29.25 (30% of ₹7,500) should go towards your wants.

₹ 1,500 $ 19.5 (20% of ₹7,500) should go towards your needs.

So, the new budgeting for your second year should be:

₹ 26,500 ($ 344.5) goes towards needs. ₹ 17,250 ($ 224.25) goes towards your wants and ₹ 13,750 ($ 178.75) towards your investments.

The logic behind this is you were able to make your living using the first 50% needs that were given to you, right? However, due to inflation and some other reasons that might have increased your expenses, you might need some extra money. However, since you were already able to use 50% and survive, your extra, if it is as low as 20%, you will still be able to manage.

Pep talk

Let me be extra clear: The goal is to be rich and retire early. Not look rich and retire late.

Yes. There will be a few times when you will curse this forced frugality. But, trust in the process and it will be worth it. Obviously, this is not set in stone. You can change the increment in needs to 30% and wants to 20%. Maybe you can even change it a few percentages up or down. However, the main point is to save as much money as possible and invest it so that your money keeps making money for you.

Hopeful conclusion

I do sincerely hope that this budgeting technique with a twist helped you in better budgeting your money and will drive you towards an early financial independence. This way, you will be able to make the money work for you to earn more money and spend lesser and lesser time to do it yourself. Escape the big man. #revolution 😋

See you soon in the next post!

A few books that I would recommend to anyone who is new to this field and wants to learn on how to make money and, more importantly, stay rich. There’s no harm in just checking them out. Click on the link to do so.

  1. Psychology of money
  2. Rich dad poor dad
  3. The 4-hour workweek
  4. Do epic shit