Many people follow the popular 50-30-20 budgeting rule, dividing income into 50% for needs, 30% for wants, and 20% for savings. But personal finance expert, Ritesh Sabharwal, warns that this approach often overlooks one crucial factor: an individual’s actual financial goals.
“Following the 50-30-20 rule blindly can be misleading,” said Sabharwal. “It ignores your real-life goals and the investments required to achieve them.”
He gave a simple example: someone earning Rs 1 lakh a month would save Rs 20,000 under this rule. But what if their personal goal, such as buying a house or securing retirement funds, requires a monthly investment of Rs 35,000? In such a case, sticking to the traditional rule leaves them short of what they actually need.
Sabharwal advises starting with goal planning before setting percentages. “Your budget should match your life,” he said. This means first identifying short-term, medium-term, and long-term goals, calculating the investment required for each, and then building a budget that supports these targets.
According to him, 50-60% of people who follow goal-based budgets stick to their plans, while traditional budgeters often give up midway. “There is no one-size-fits-all,” Sabharwal added. “One person may need 40% of their income for savings, another may thrive on 25%. Percentages are just numbers; your budget should reflect your unique goals.”
In fact, the advice from Sabharwal is straightforward. Focus on your goals first and let percentages follow. By designing a budget around actual aspirations, individuals can achieve financial stability, meet objectives efficiently, and avoid the frustration of generic rules that may not fit their lifestyle.