hi friends many people in India have blindly promoted a very very famous Finance rule called 503020 This is a rule because it does not work for Indians and I will walk you through some of those reasons in this video but more importantly if you're following this rule of 50 302 you are not likely to become financially independent anytime sooner so this rule was given by a US senator called Elizabeth Warren back in 2005 in her book called all your worth as per this rule 50% of your after tax income should be spent on your needs
such as Roy Kaa Macan and insurance and 30% of your after tax income can be spent on your wants such as gadgets holidays Hobbies Etc and the remaining 20% of your after tax income should be saved and invested in stuff like mutual funds stocks property Etc now Elizabeth came up with reason for people living in us because of certain reasons that are not going to play out for Indians and let me give you one of those reasons so in America education from kinden garden to 12th standard is absolutely free in fact $1.3 trillion us is
spent by state government and local government to fund this education 87% of American kids go to public schools State schools so parents in US spend zero money on their kids education from 0 to 12th and therefore Americans can very well afford to spend 30% % of their money on their want such as Hobbies vacation Etc on the other hand we Indians do not send our kids to government schools not because we don't want to because Indian government spends close to one tenth of the money that the US spends on education while the population of India
is four times more than the US population so naturally the standard of education for our kids is not what people get in us and therefore we are forced to send our kids to private schools and nowadays to send your kids to a private school in India you need to minimum spend 10,000 to 20,000 rupees per month per kid so if you have two kids then 20,000 to 40,000 per month for kids education and if I forecast this number for 12 years of horizon you are going to end up spending 28 lakhs to 56 lakh rupees
on just your kids education from 1 to 12th standard therefore spending 30% of our money on our wants does not make any sense in Indian context let's forget about Americans for a minute and let me take you to China so Chinese people are really good in managing their money and their secret rule that they use is 10 is to 1 very very famous rule in China what this rule simply means is that if you're earning 100 rupees then you can afford to spend 10 Rupees from your pocket now this is practically possible in India for
people who are ultra wealthy people who are earning 10 lak Rupees per month they can afford to spend 1 lakh rupees because living on 10% of your income is only possible possible if you have extremely extremely high income here in India most people earn somewhere around between 50,000 rupes per month to 1 lakh rupes per month so how do we manage this tiny salary or the income but we still be financially healthy this is what I'm going to talk about so to manage our tiny income we need to learn four very very important Financial Concepts
number one Japanese Secret Of Money Management called kbo number two secret of IT project management called rag method number three my simple rule that I'm trying to use from a number of years is 50 25 25 and concept number four which is where to then exactly invest this tiny salary so that you always remain financially healthy let me walk you through all those four Concepts in a very very simple language so first is Japanese money management technique called kbo now kbo literally means household Financial Ledger motoo heny a famous journalist from Japan back in 194
four invented this methodology called kbo as part of this methodology Japanese men will give all their income to their wives I don't know how many of Indians are doing that but if you're doing that let me know in the comments now what wives will do with this money is they will categorize every single spend that they're making throughout the month into four broad buckets so they will literally write down every single spend in a physical Ledger called kbo and we'll categorize it into four main buckets number one needs number two wants number three cultural spend
and number four unexpected spend now this gives them very good handle of where the hell this money is going and this becomes very very important for Indians because we are spending a hell lot of money using UPI not having any clue where all our money is going so what we need to do is to follow this methodology get a physical notebook and start categorizing your spend into four key buckets but I'm going to take this one step further and break down these four categories into something that is more relevant to us so first bucket that
is needs we are going to break it down into six subcategories of spend rent food clothing travel for work utility for bills and insurance just in case you're wondering why insurance is included in needs Please be aware that medical inflation in India is right now at all-time high running at 15% twice as the retail inflation on an average Indians are getting heart attacks 10 years before Americans so without having Insurance your entire financial plan will be wiped out in one single hospital bill so according to me health insurance is a basic need it's a necessity
that we need to have in our needs bucket if you have not yet taken health insurance ditto is an excellent Insurance platform provider because ditto is a no spam Insurance platform it is backed by zeroda so you can trust this platform and also you can get a 30 minutes free consultation from a dto expert that will understand your personal needs and will guide you through various insurance plans to select the right insurance plans for your specific needs simply click on the link provided in the description enter your personal details choose a convenient date and time
and a ditto expert will call you to understand your needs and we'll give you the right insurance plan so in the needs bucket we have got these six broad subcategories now let's move to bucket number two which is wants so within wants I want you to categorize your spend into four subcategories number one Hobbies number two passions number three getting wasted which is your alcohol spend your cigarettes or whatnot and number four is upskilling extremely important third bucket that is cultural I want you to break it down into three subcategories number one is Festival expenses
Dura Puja Diwali holy Christmas whatever wherever you're spending money during the festival expenses all of that need to go into this bucket second subcategory is donations so people make lot of donations I'm hoping you are also doing your bit to the society and if you're doing that please tag that into the donations sub bucket and third most important is all your family ritual so if you're giving lot of shagun to your sisters your brothers or whoever it is please make no note of all of that money because every single rupee makes a big difference in
your financial plan and lastly fourth bucket which is unexpected there is no subcategories here because unexpected by its very definition means unexpected you don't know where these expenses are coming from so broadly these are the four buckets that you need to start writing down all your expenses and categorizing into these four buckets now why are we doing that for that let me move to very very important second concept called Financial rule of 5025 25 what is this 50 2525 this simply means that 50% of your after tax income the inhand income you can spend across
these four bucket so your maximum limitation is going to be 50% 25% of your after tax income needs to be invested for shortterm goals I will talk about it and remaining 25% needs to be spent or invested into meeting your long-term goals again I will talk about that in detail but let me now first handle 50 % of your after tax income how do we really spend this into four big buckets because immediately question you will have is that Rahul if I'm earning 50,000 Rupees you're asking me to spend only 25,000 rupees in my needs
in my wants in my cultural spend in my unexpected spend how the hell I am going to manage that for this let me actually walk you through concept number three which is what we predominantly use in IT project management I've been IT project manager for 16 plus years now and we use a very powerful concept which is called rag status people who are in it will understand this rag so what does this rag actually mean r stands for red a stands for Amber and G stands for green consider this as a traffic light so red
means stop Amber means wait and green means go now let us assume that your salary is 50,000 Rupees so I'm saying 50% of your 50,000 Rupees that is 25,000 Rupees is the maximum you can spend across these four buckets but if if you're saying that 25,000 Rupees is too less what you need to do is categorize your spend into rag method red simply means those subcategories which are not important for you and you do not want to spend your money and you're making that conscious Choice Green simply means that you really want to spend money
on those categories because those are important for your lifestyle and yellow means that you have little choice you can't do much about it so this is the method we are going to use which is going to bring prioritization on your 25,000 rupees of spend every month let me give you a simple walkr of what rag means to me in a very very simple way for example in the needs bucket personally for me rent is a big red for me I've been spending very little money on rent so for example back in 2010 I came to
London and I lived in a studio flat for 3 years and that studio flat used to cost me roughly £700 per month and that time my salary was close to £3,200 per month after tax so I was living on rent that is less than 20% of my take-home salary many people at that time who were with me were living in 2bhk house that was costing them around 1500 to 1600 rupees per month basically 50% of their salaries were going into the rent maybe it was important for them to live in a 2bhk house at that
time for me it was not that important another R for me is clothing I hardly spend any money on clothes right now for example I'm wearing this t-shirt which is only 500 rupees I wear shorts which I'm very very comfortable of course you can't see them right now but my point is simple that these are my two Reds and I'm absolutely comfortable not spending my money on rent as well as on clothing now travel for work utility bills and insurance for me these are my yellows that I can't really help I have to spend money
on these but when it comes to food this is where my green is I spend good money on my food so for example I don't know how many of you eat almonds but I eat almonds every day I only eat mamra almonds I don't know how many of you know about the quality of mamra almonds but they cost like $25 500 rupees per kg premium quality so again on food I do not compromise a lot that is my green so what you need to do is from this 25,000 rupees you need to find your own
rag for the needs column if I look at my wants column then I spend lot of money on my hobbies one of them is traveling I travel a lot in fact in last few years I've been to 13 plus countries and I've taken lot of cruises and so much of fun that experience is what I crave for and I spend my money into that particular bucket my point is very simp simple you can easily live on 50% of your income and for that what you need to do is use this Japanese method of Kobo noting
down all your expenses into these buckets and secondly put in this rag status so that you identify consciously which are your Reds which are your Embers and which are your greens and try and prioritize your spend so far if you're liking this video a humble request for you to hit the like button let me know in the comments a simple thank you and the fact that you're liking this kind of content I will come up with more such content for your use at zero cost let me now move to Fourth very very important concept that
will take you to the path of Financial Freedom which is where to invest your remaining 50% salary so we have to divide this remaining 50% salary or income into two broad buckets one is 25% of this needs to be saved and invested for short-term goals remaining 25% needs to be saved and invested for your long-term goals but before you start any Investments please make sure that you have emergency fund I created a full video on emergency fund you will find this on my channel this is a modern approach for you to plan for your emergency
fund please do not make the mistake of investing without having your emergency fund now coming back to 25% of your money being invested in short-term goals what are short-term goals short-term goals are all your goals that you want to achieve in the next 5 years for example it could be that you want to buy a house in the next 5 years for example you want to get married in the next 5 years for example you want to go for a honeymoon in the next 5 years for example you want to take a holiday abroad it
could be anything but as long as it is within the next 5 years and long-term goals are those which are Beyond five years for example you want to plan for your retirement you want to plan for your kids higher education for example you're saving for your kids wedding for example you're saving for inheritance that you want to leave and lastly for example you want to also donate to Charities it could be anything as long as it is beyond 5 years now this video is getting really long what I really want to do is let me
know in the comments if you would like me to give you a very good framework of which are the instruments you need to invest this 25% money for short-term goals and which are the instruments that you must look to invest your remaining 25% salary to achieve your long-term goals which are going to take you to the path of Financial Freedom let me know in the comments part two and I'll be happy to come up with part two last but not least if you still do not have health insurance all of this plan may be wiped
out in a single hospital bill so make sure you have health insurance and check out the link that I have provided for ditto Insurance platform an excellent Insurance platform I hope you enjoyed this video I will see you in my next video Until then keep rocking
