50/15/5: Saving Rule of thumb

A few days before I came back home from work on a rainy day to discover the ceiling leaking in my apartment was leaking. To be perfectly clear, I'm not talking a few sporadic drops of water here and there. The entire kitchen was a mess. Giant patches of ceiling had fallen onto the floor, which was then covered with about two inches of water, and my rugs, furniture, and artwork were completely waterlogged.

As I scrambled around to find pots and pans, and called my landlord to fix the ceiling for the umpteenth time, something became crystal clear. It was time to get serious about moving into a nicer place—which, in turn, meant getting serious about putting together a budget.

Budget? Does anyone like this word in this world? I had budget in the past but never really kept commitment towards my budget due to one or another reason.

Then I learn about 50/15/5 saving rule. Why? 50/15/5 saving rule .It is a simple rule for saving and spending money allocating no more than 50% of take-home pay to essential expenses, 15% of pretax income to retirement savings, and 5% of take-home pay to short-term savings. (Your situation may be different, but you can use our rule of thumb as a starting point.)

Here are some tips for 50/15/5 rule:

Lesson 1: Essential Expenses 50%

Some expenses in your daily life cannot be skip- You need money to eat, you need money to stay in a place and need money for travel expenses. Such as

Housing — Mortgage, rent, property tax, utilities (electricity, etc.), homeowner's/renter's insurance, and condo/home association fees

Food — Groceries only; do not include takeout or restaurant meals, unless you really consider them essential, i.e., you never cook and always eat out

Health care — health insurance premiums (unless they are made via payroll deduction) and out-of-pocket expenses (e.g., prescriptions, co-payments)

Transportation — Car loan/lease, gas, car insurance, parking, tolls, maintenance, and commuter fares

Child care — day care, tuition, and fees

Debt payments and other obligations—credit card payments, student loan payments, child support, alimony, and life insurance

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Keeping it below 50%: Just because some expenses are essential doesn’t mean they’re not flexible. Small changes can add up, such as turning the heat down a few degrees in the winter (and up in the summer), buying—and stocking up on—groceries when they are on sale, and bringing lunch to work. Also consider driving a more affordable car, carpooling, or taking public transportation. with a other ways you Take a look at which essential expenses are most important, and which ones you may be able to cut back on.

Lesson 2: Retirement saving 15%

You Must Save 15% of you’re earning because it is important save of your future- No matter How Young or How Old you are?

When you’re young and you’ve just started out on your career, saving for retirement may be the last thing on your mind, when in fact doing so is just one of many money mistakes to avoid. It’s tempting to spend your hard earned money on things you can enjoy now, but in another 30 years or so, all those vacations you took and those expensive restaurant meals you enjoyed aren’t going to help you pay the bills when you’re retired.

Lesson 3: Short Term Saving 5%

Everyone needs an emergency fund. An emergency, like an illness or job loss, is bad enough, but not being prepared financially can only make things worse. A good rule of thumb is to have three to six months of essential expenses readily available. Think of emergency fund contributions as a regular bill every month, until there is enough built up.

Once a sufficient emergency fund is in place, it’s a good idea to turn to saving for short-term expenses that pop up unexpectedly. Who hasn’t been invited to a wedding—or several? Cracked the screen on a smartphone? Gotten a flat tire? Setting aside 5% of monthly pay can also help with these “one-off” expenses. Don’t be tempted to pay for one by adding to an existing credit card balance. Over time, these balances can be hard to pay off. However, if you pay the entire credit card balance every month, and get points or cash back for purchases, using a credit card for one-off expenses may make sense.

How to get to 5%: Having this money automatically taken out of a paycheck and deposited in a separate account just for short-term savings can help a person reach this goal.