Did You Know the 50/30/20 Rule in Personal Finance?

Women empowerment and financial literacy are the watchwords today, no doubt. We have indeed come a long way from debating now obsolete topics like “A Woman’s Place is in the Kitchen” to women handing out rulings in courts, being part of corporate decision-making, and conquering the sky and the ground with equal aplomb.

Financial independence means earning income through jobs or professional opportunities. But what about the money earned—are we making the investment decisions ourselves?

In many of my interactions with women prospects, I have found a gap between earning and making investment decisions about the earned money. A very common response I hear is, “It’s my father or husband who makes the decision. I don’t understand this financial stuff.” This is the sad truth. We manage our home finances, we manage our professional lives, but we step back 100 miles when it comes to making investment decisions for ourselves.

I ask women, “Do the male members have extraordinary brains?” The surprising answer often is, “They seem to understand better.” Mind you, readers, here I am speaking of educated urban women.

Yes, women today are indeed in a far better situation than previous generations. But when we speak of women’s empowerment, can we achieve full success without the independence to grow and safeguard our money? How far can we really progress by devolving the responsibility to our male family members? How far can we enjoy real independence without having responsibility for our investment decisions?

As I scroll through various women’s groups on Facebook, what comes to light are cases of infidelity and domestic violence. These are educated women who are also earning, yet they are the ones who fall victim to such abuses. In such cases, can we trust our partners completely? If not, should we not take responsibility?

A simple rule of finance is the 50/30/20 rule. Out of the total monthly earnings, 50% is allocated to NEEDS, 30% to WANTS, and 20% is earmarked for SAVINGS. Set aside the savings and look into investment instruments you are comfortable with. Fixed deposits and life insurance are easier to start with. The fear of losing capital in such secure instruments is almost non-existent. Once the first steps are taken, the rest becomes easier. Let the male members decide on our behalf, but let us also take the responsibility of making some decisions ourselves. Life will only become better with a confident US.

Health is wealth. A personal health insurance policy is a must, no matter what the employer provides. With rising medical costs, this has to be part of our planning.

Last but not least, a contingency fund is an integral part of financial planning. It should be a minimum of 3 months’ current salary.

Finance is not rocket science. It is our conditioning that has made it seem so. In today’s world, when many of us choose to remain single, having a full understanding of our finances is no longer an option but a necessity.

Let us empower ourselves fully by making decisions on our financial journey ourselves. Let us celebrate our independence by making financial decisions on our investments independently.

-Soma Swagata Basu is a life insurance consultant specializing in Personal Savings, Child Education, and Retirement Planning, with over two decades of experience.