Guides

Does the 50/30/20 rule work in India?

The 50/30/20 rule says half your take-home goes to needs, 30% to wants and 20% to saving. It is a good starting idea. In an Indian city it often breaks on the first line.

Where the rule comes from

The split was made popular by Elizabeth Warren and Amelia Warren Tyagi in their book All Your Worth. Needs are things you must pay, like rent, loan payments and bills. Wants are everything you choose. The last 20% goes to saving or paying down debt.

Where it breaks

Take ₹55,000 take-home in a city where your share of rent is ₹22,000. Add a ₹6,000 EMI and ₹4,000 of bills.

The rule says needs should be ₹27,500. You are over before you have bought groceries. Nothing is wrong with you. Rent in big cities can take a large share of a salary, and the rule has no room for that.

A version that works

Keep the part of the rule that matters, which is saving first, and drop the fixed percentages for the rest:

1. Take out what you must pay: rent, EMIs, bills.
2. Take out a saving amount you can actually hold. 20% is a good aim. If it does not fit yet, start lower and raise it when the rent or an EMI changes.
3. Everything left is your spending money. Divide it by the days in the month.

In the example, saving 20% (₹11,000) leaves ₹12,000. In a 30-day month that is ₹400 a day, or ₹2,800 a week. Tight, but now you know, and you know which line to work on.

Percentages tell you what to aim for. A daily number tells you where you stand on a Tuesday evening, which is when spending decisions actually happen.

Try it with your salary

Varun Thakkar, founder of VThrive. Write to me at varun@vthrive.co.in if something here is wrong.