Ten thumb rules of household budgeting
Tip: The ratio should not exceed 40% for mortgage-based repayments and 10% for other debts.
2) Discretionary spending: It's not possible to live a frugal life devoid of everyday joys. But you must make the distinction between wants and needs.
Tip: Discretionary spending should not exceed 10-15% of your net take home income.
3) Savings ratio: This shows how much of your income you save. The higher the ratio, the better it is.
Tip: When you are young, the ratio should be 30-50%. It will gradually come down as liabilities rise with every life stage. It could be as low as 15-20% in your 40s and 50s.
4) Retirement planning: This should be the most important financial goal for any investor. You can get a loan for all other goals but retirement.
Tip:At least 10% of your gross income should go into retirement savings. As income rises, so should your savings for retirement
5) Contingency ratio: This measures your ability to raise money during extraordinary circumstances, such as a medical emergency or loss of job.
Tip: One should have a contingency fund that can take care of expenses for at least 5-6 months.
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