Split your income in 4 parts. Let’s assume your income is X.
- One part goes into meeting your expenses that meets basic needs. So your expenses is X/4.
- One part goes in savings. So your savings is X/4
- One part goes to your parents or establishment costs e.g you want to buy a car or pay off some loan, yearly trip, eating out, movies etc. So your family contribution is X/4.
- One part goes in investment, risks, ventures. So your growth proposition is X/4
Your income = Basic needs + Savings + Contribution/Entertainment/Establishment+ Investment
What is the difference between saving and investment?
Saving is your backup money, not growth. Investment is a growth possibility.
So if you earn 52,000 a month, your spending is reduced to 13000 (this covers basic needs).
You should save 13000 as recurring deposits. This is cold hard savings which you can use at times of emergency.
You should use 13000 to buy stuff you need. Clothes, furniture etc. If parents need money, you should give it from this 13000. If you don’t need to contribute, split it again into three parts. One part goes to saving , another part goes to investment and the rest goes towards spending.
Rest remains 13000. You can use this to start a business or some venture, buy stocks, … this is your growth mechanism. (this is not savings, you will use this amount for growing money)
P.S: This principle has been lifted from Rigveda.