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.

THE PROBLEM WITH FIXED PERCENTAGES

“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.

GOAL-BASED BUDGETING WORKS BETTER

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.

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