Financial Literacy

Budgeting: the 50 / 30 / 20 rule

Most budgets fail because they have thirty categories. This one has three. Split your take-home pay:

• 50% needs — rent, groceries, utilities, transport, school fees, EMIs, mobile and internet.
• 30% wants — eating out, subscriptions, travel, gadgets, anything you could pause for three months without harm.
• 20% savings and debt repayment — this is the number that decides your future, and it should leave your account first, not last.

The split is a starting frame, not a law. In an expensive metro, needs may genuinely be 60%. The point is that you know the three numbers, and you automate the third one on salary day. Money that reaches your savings after a month of spending is whatever happened to survive — that is not a plan.

The emergency fund comes first

Before any investment, build three to six months of essential expensesin something you can reach the same day — a savings account or a liquid fund. Not equity, not a locked deposit, not “I’ll sell some shares if needed”.

Why this comes first:

• Job loss and medical events arrive without notice, and they arrive together with market downturns more often than feels fair.
• Without a buffer, the only options are a credit card at ~36% a year or a personal loan. One emergency can undo three years of investing.
• Being able to say “I can survive four months” changes how you negotiate, and what risks you can afford to take.

Count only essential expenses — rent, food, utilities, EMIs, insurance premiums, school fees. Not holidays.

Credit cards and expensive debt

A credit card is a free 30–45 day loan if you pay the full statement amount every month. The moment you pay only the minimum due, it becomes one of the most expensive borrowings available to a retail customer in India — commonly around 3% per month, which compounds to roughly 40% a year.

Two things that catch people out:

• Paying the minimum due does not just delay interest on the unpaid part — it usually ends the interest-free grace period on new purchases too.
• Cash withdrawal on a credit card attracts interest from day one plus a fee. Treat that feature as if it does not exist.

If you are carrying balances, clear them in order of interest rate, highest first — credit card, then personal loan, then anything secured. Prepaying a 9% home loan while carrying a 40% card balance is a guaranteed loss.

Inflation, the silent tax

Money in a savings account earning 3% while prices rise 6% is losing 3% of its purchasing power every year — quietly, with no statement line item to alert you.

That is why an emergency fund should be sized in months of expenses, not in a fixed rupee amount you set in 2019, and why money you will not need for five years or more should not sit in cash.

Investing: start boring, start early

Time in the market does more work than cleverness. A modest monthly amount started at 25 usually beats a much larger amount started at 40, because the early money compounds for far longer.

A sensible order of operations

1. Emergency fund fully funded.
2. Term life insurance and health insurance in place.
3. All high-interest debt cleared.
4. A monthly SIP into a low-cost, broad-market index fund. Broad and cheap beats exciting: most actively managed funds do not beat their index after fees over long periods, and you cannot know in advance which ones will.
5. Long-term debt allocation — EPF/VPF, PPF, or a good debt fund, depending on your horizon and tax position.
6. Only then, if you enjoy it, a small allocation to individual stocks — money you can afford to be wrong about.

Diversify across asset classes, not just funds

Owning eight equity funds is not diversification; it is the same risk eight times. Real diversification means equity and debt and some gold, in a mix that matches when you need the money.

Insurance before investment

One hospitalisation or one death in an earning household can wipe out a decade of savings. Insurance is not an investment — it is what stops an accident from becoming a catastrophe.

• Term life if anyone depends on your income. A common rule of thumb is 10–15× annual income, for a term that runs until your dependants are financially independent. Pure term cover is cheap precisely because it has no investment component.
• Health insurancefor the whole family, and personally owned — not only your employer’s group cover, which ends the day the job does. Check room-rent limits, disease-wise sub-limits and waiting periods before you compare premiums.
• Declare everything. Non-disclosure of a pre-existing condition is the most common reason a claim is rejected, and it is discovered exactly when you need the money.

Tax deductions worth using

If you are on the old tax regime, a handful of sections do most of the work. Compare the old and new regimes each year — for many people with few deductions the new regime is simply better, and chasing deductions to “save tax” is not worth buying a bad product.

• 80C covers EPF contributions, PPF, ELSS, life-insurance premium, principal on a home loan and more, up to an overall cap. Your existing EPF often fills a large part of it before you buy anything new.
• 80D covers health-insurance premium for you and your family, with an additional separate limit for parents — higher if they are senior citizens. This one is widely under-claimed.
• Home loan — principal and interest are treated under different sections, with different limits. Read your provisional certificate rather than guessing.
• NPS offers an additional deduction over and above 80C, in exchange for a long lock-in and annuity rules at maturity. Worth it only if you are comfortable with those constraints.

Nomination and paperwork

The least glamorous and most valuable hour you will spend: add or update the nominee on every bank account, deposit, mutual fund folio, EPF account, demat account and insurance policy.

Without a nominee, a family that has just suffered a loss also has to deal with succession paperwork to reach money that was always theirs. Then do one more thing: keep a single written list of where everything is, and tell one person you trust where that list lives.

Recognising fraud

Almost every payment fraud in India relies on the victim performing an action. Learn the five patterns and you are largely immune.

1. The OTP is the whole game

An OTP is a one-time key to your money. No bank, no telecom operator, no recharge platform and no Paybeez employee will ever ask for it— not on a call, not on WhatsApp, not to “verify” or “cancel” anything. Anyone asking is committing fraud, full stop.

2. Collect requests: you approve, you pay

On UPI, entering your PIN sendsmoney. It never receives money. If someone says “approve this request to get your refund/prize/ cashback”, they are asking you to pay them.

3. QR codes only send

Scanning a QR and entering a PIN pays out. A genuine refund needs nothing from you beyond the original payment reference.

4. Remote-access apps

No support process requires you to install a screen-sharing or remote- control app. If a “bank executive” asks you to, end the call and report the number.

5. Urgency is the tell

“Your account will be blocked in 30 minutes”, “KYC expires today”, “click to avoid a penalty”. Manufactured urgency exists to stop you thinking. Hang up and call the number printed on your own card or passbook.

Habits that do the heavy lifting

• Automate on salary day. Savings and SIPs should move before you can spend them.
• Review statements weekly, not yearly. Ten minutes catches a forgotten subscription, a duplicate charge and a fraud attempt.
• Raise your savings rate with every increment instead of raising your lifestyle by the full amount.
• Set goals, not amounts.“₹6 lakh for a car in four years” survives a bad market; “save more” does not.
• Learn one thing a week. Financial competence compounds like money does.

Small savings add up — start with Save Money on Recharge, which is usually the fastest few thousand rupees a year anyone can find.