One should opt a habit of dividing Income as per below four parts to become financially free
1) Save for future – 25% 2) Household expenses – 25%
3) Lifestyle expenses – 25% 4) EMI/ Rent – 25%
1.Save for future – 5% Health and Life insurance premium and 20% investments for short term, medium term and Long term responsibilities and dreams of life.
2. Household Expenses like food and helpers shouldn’t be more than 25% income.
3. Lifestyle expenses like movie, shopping, outside food, traveling shouldn’t be more than 25% if your income.
4. Rent /EMI of all loans shouldn’t be more than 25% of the income.
Few other Thumb Rules –
Our Home cost shouldn’t be more than 5 to 6 times of our family income.
And car cost shouldn’t be 80% of our annual Family income.
Reason is Home and car both require maintenance and generally costs annually 5% to 10% of the value.