Want to be RICH with Salary? | STOP 50:30:20 | Start Kakeibo in 2024 | Financial Freedom| Rahul Jain

Summary

The video script critiques the 50/30/20 financial rule, arguing it's unsuitable for Indians due to high education costs. It introduces the Japanese KBO money management technique and the 50/25/25 rule, emphasizing prioritizing expenses and investing wisely for short-term and long-term goals. The speaker also stresses the importance of having health insurance.

Takeaways

• 😀 The 50/30/20 rule, popular in the US, may not be suitable for Indians due to different financial circumstances.
• 🏫 In the US, education from kindergarten to 12th grade is free, allowing Americans to spend more on wants, unlike in India where private education is expensive.
• 💼 The speaker suggests that Indians should not follow the 50/30/20 rule blindly and instead consider their unique financial needs.
• 🇨🇳 The Chinese 10:1 rule, where you spend 10% of your income, is mentioned as a more practical approach for many in India.
• 📚 The Japanese money management technique called 'KBO' is introduced, emphasizing the importance of categorizing expenses into needs, wants, cultural spend, and unexpected spend.
• 💡 The speaker recommends using the KBO method to track and manage expenses, which can help in understanding where money is being spent.
• 💰 A new financial rule of 50/25/25 is proposed, where 50% of after-tax income is spent, 25% is saved for short-term goals, and 25% is invested for long-term goals.
• 🚦 The IT project management concept of RAG (Red, Amber, Green) is introduced to help prioritize spending within the 50% of income allocated for spending.
• 🏦 The speaker advises having an emergency fund before starting any investments and emphasizes the importance of health insurance.
• 🌐 The video concludes with an invitation for viewers to request more information on investment strategies for short-term and long-term goals in a potential follow-up video.

Q & A

What is the 50/30/20 rule mentioned in the video?

The 50/30/20 rule is a financial guideline proposed by US Senator Elizabeth Warren. It suggests that 50% of your after-tax income should be spent on needs (like housing, food, and insurance), 30% on wants (like hobbies, vacations, and gadgets), and 20% should be saved and invested.

Why might the 50/30/20 rule not be suitable for Indians according to the video?

The video suggests that the 50/30/20 rule may not be suitable for Indians because it was designed for the US context. In India, education costs are significantly higher, and many families have to spend a large portion of their income on private school fees, which is not accounted for in the rule.

What is the significance of the 10:1 rule in China?

The 10:1 rule in China is a financial management technique where you spend only 10% of your income. This is more applicable to those with very high incomes, as living on 10% of your income is challenging for most people.

What is the Japanese money management technique called KBO mentioned in the video?

KBO is a Japanese money management technique where all income is given to the wife, who then categorizes every expense into four broad buckets: needs, wants, cultural spend, and unexpected spend. This helps in tracking and managing expenses effectively.

What are the four main categories of expenses in the KBO method?

The four main categories of expenses in the KBO method are needs, wants, cultural spend, and unexpected spend.

What is the financial rule of 50/25/25 proposed in the video?

The financial rule of 50/25/25 suggests that 50% of your after-tax income should be spent on needs, wants, cultural spend, and unexpected expenses. The remaining 50% should be split into 25% for short-term goals and 25% for long-term goals.

What is the RAG method mentioned in the video?

The RAG method is a project management technique where expenses are categorized as Red (not important), Amber (somewhat important), and Green (very important). This helps in prioritizing spending and managing the budget effectively.

What is the importance of having an emergency fund according to the video?

Having an emergency fund is crucial as it provides a financial safety net. Without it, any financial plan could be wiped out by a single large expense, such as a hospital bill.

What are short-term goals in the context of the video?

Short-term goals are those that you aim to achieve within the next five years, such as buying a house, getting married, going on a honeymoon, or taking a holiday abroad.

What are long-term goals in the context of the video?

Long-term goals are those that extend beyond five years, such as planning for retirement, saving for children's higher education, saving for their weddings, or leaving an inheritance.

Outlines

00:00

💡 Introduction to the 50/30/20 Rule and its Inapplicability in India

The video script begins by introducing a financial rule called 50/30/20, which was proposed by US Senator Elizabeth Warren. According to this rule, 50% of one's after-tax income should be spent on needs, 30% on wants, and 20% on savings and investments. The speaker argues that this rule is not suitable for Indians due to differences in societal structures, particularly in education costs. In the US, education from kindergarten to 12th grade is largely free, allowing Americans to allocate a significant portion of their income to discretionary spending. In contrast, Indian parents often have to spend a substantial amount on private education, making the 30% allocation for wants impractical. The speaker also introduces the concept of the 10/1 rule popular in China, which suggests spending only 10% of one's income, and contrasts this with the financial habits of Indians.

05:02

📚 Japanese Money Management Technique and the 50/25/25 Rule

The speaker introduces the Japanese money management technique known as 'Kobo', which involves categorizing expenses into four broad categories: needs, wants, cultural expenses, and unexpected expenses. This method helps in tracking and managing spending. The speaker then presents the 50/25/25 rule, suggesting that 50% of after-tax income should be spent on needs, 25% on short-term goals, and 25% on long-term goals. The speaker emphasizes the importance of prioritizing expenses using the RAG (Red, Amber, Green) method from IT project management, where Red indicates non-essential expenses, Amber signifies necessary but potentially adjustable expenses, and Green represents essential expenses. The speaker provides examples of how to apply this method to different categories of spending.

10:03

💼 Applying the RAG Method to Personal Finance and Investing Strategies

The speaker continues by explaining how to apply the RAG method to personal finance, using examples from their own life to illustrate how different expenses can be categorized. They emphasize the importance of prioritizing essential expenses (Green), reducing non-essential expenses (Red), and making conscious choices about necessary but adjustable expenses (Amber). The speaker also discusses the importance of having an emergency fund before investing and outlines the need to divide the remaining 50% of income into short-term and long-term investment goals. They suggest that short-term goals (within 5 years) and long-term goals (beyond 5 years) should be addressed separately, and encourage viewers to engage in the comments to learn more about specific investment instruments for these goals.

Keywords

💡503020 Rule

The 503020 Rule is a financial guideline proposed by U.S. Senator Elizabeth Warren in her book 'All Your Worth'. It suggests that 50% of one's after-tax income should be spent on needs, 30% on wants, and 20% on savings and investments. In the video, the speaker argues that this rule is not applicable to the Indian context due to differences in societal and economic conditions, such as the cost of education.

💡Financial Independence

Financial independence refers to the state of having enough income and savings to cover one's living expenses without relying on active employment. The video emphasizes that blindly following the 503020 Rule will not help achieve financial independence in India, as it does not account for the unique financial pressures faced by Indians.

💡Education Costs

Education costs in the video are highlighted as a significant expense in India, contrasting with the U.S. where public education is largely free. In India, the speaker mentions that parents often have to spend 10,000 to 20,000 rupees per month per child on private school education, which is a major financial burden and impacts the feasibility of following the 503020 Rule.

💡KBO (Kakeibo)

Kakeibo is a Japanese money management technique that involves categorizing expenses into different buckets. The speaker introduces this method as a way to track and manage spending in India, suggesting that it can help individuals gain better control over their finances by understanding where their money is going.

💡RAG Method

The RAG (Red, Amber, Green) method is a project management tool used to assess the status of tasks or projects. In the video, the speaker adapts this method for personal finance, suggesting that individuals categorize their expenses as 'Red' (not important), 'Amber' (somewhat important), or 'Green' (important) to prioritize spending within their budget.

💡50-25-25 Rule

The 50-25-25 Rule is a financial guideline proposed by the speaker, suggesting that 50% of after-tax income should be spent on needs, 25% saved for short-term goals, and 25% saved for long-term goals. This rule is presented as a more suitable approach for managing finances in the Indian context.

💡Short-term Goals

Short-term goals in the video are defined as financial objectives that one aims to achieve within the next five years, such as buying a house, getting married, or going on a honeymoon. The speaker advises allocating 25% of after-tax income towards achieving these goals.

💡Long-term Goals

Long-term goals are financial objectives that extend beyond five years, such as retirement planning, children's higher education, or saving for a child's wedding. The speaker suggests that the remaining 25% of after-tax income should be invested to meet these long-term goals.

💡Emergency Fund

An emergency fund is a financial safety net that covers unexpected expenses or emergencies, such as medical bills or job loss. The speaker emphasizes the importance of having an emergency fund before starting any investments, as it is crucial for financial stability.

💡Health Insurance

Health insurance is highlighted in the video as a necessity, not just a want, due to the high cost of medical care in India. The speaker warns that without health insurance, a single hospital bill could wipe out one's financial plan, making it a critical component of financial health.

Highlights

The 50/30/20 rule, popular in the US, may not be suitable for Indians due to different financial and social conditions.

The 50/30/20 rule was proposed by US Senator Elizabeth Warren, suggesting 50% of after-tax income for needs, 30% for wants, and 20% for savings and investments.

In the US, education from kindergarten to 12th grade is free, allowing Americans to spend more on wants, unlike in India.

In India, the cost of private school education is high, making it impractical to allocate 30% of income to wants.

The Chinese 10/1 rule suggests spending only 10% of one's income, which is more applicable to India's financial context.

The Japanese money management technique called 'KBO' involves categorizing expenses into four broad buckets: needs, wants, cultural spend, and unexpected spend.

The KBO method helps in tracking and managing expenses effectively, which is crucial for financial planning in India.

The 50/25/25 rule is proposed as an alternative to the 50/30/20 rule, suggesting 50% of income for needs, 25% for short-term goals, and 25% for long-term goals.

The RAG method from IT project management can be applied to personal finance to prioritize expenses into red (stop), amber (wait), and green (go) categories.

Personalizing the RAG method helps in consciously deciding which expenses are essential and which can be reduced or avoided.

Having an emergency fund is crucial before starting any investments.

Short-term goals are those to be achieved within the next 5 years, while long-term goals extend beyond 5 years.

Investing in the right financial instruments is essential for achieving both short-term and long-term financial goals.

Health insurance is a basic need and should be included in the 'needs' category of expenses.

Ditto is recommended as a no-spam insurance platform that offers personalized consultation and guidance on selecting the right insurance plans.

Engagement with the audience is encouraged through comments to further discuss investment strategies for financial freedom.

Transcripts

hi friends many people in India have

blindly promoted a very very famous

Finance rule called

503020 This is a rule because

it does not work for Indians and I will

walk you through some of those reasons

in this video but more importantly if

you're following this rule of 50 302 you

are not likely to become financially

independent anytime sooner so this rule

was given by a US senator called

Elizabeth Warren back in 2005 in her

book called all your worth as per this

rule 50% of your after tax income should

be spent on your needs such as Roy Kaa

Macan and insurance and 30% of your

after tax income can be spent on your

wants such as gadgets holidays Hobbies

Etc and the remaining 20% of your after

tax income should be saved and invested

in stuff like mutual funds stocks

property Etc now Elizabeth came up with

reason for people living in us because

of certain reasons that are not going to

play out for Indians and let me give you

one of those reasons so in America

education from kinden garden to 12th

standard is absolutely free in fact $1.3

trillion us is spent by state government

and local government to fund this

education 87% of American kids go to

public schools State schools so parents

in US spend zero money on their kids

education from 0 to 12th and therefore

Americans can very well afford to spend

30% % of their money on their want such

as Hobbies vacation Etc on the other

hand we Indians do not send our kids to

government schools not because we don't

want to because Indian government spends

close to one tenth of the money that the

US spends on education while the

population of India is four times more

than the US population so naturally the

standard of education for our kids is

not what people get in us and therefore

we are forced to send our kids to

private schools and nowadays to send

your kids to a private school in India

you need to minimum spend 10,000 to

20,000 rupees per month per kid so if

you have two kids then 20,000 to 40,000

per month for kids education and if I

forecast this number for 12 years of

horizon you are going to end up spending

28 lakhs to 56 lakh rupees on just your

kids education from 1 to 12th standard

therefore spending 30% of our money on

our wants does not make any sense in

Indian context let's forget about

Americans for a minute and let me take

you to China so Chinese people are

really good in managing their money and

their secret rule that they use is 10 is

to 1 very very famous rule in China what

this rule simply means is that if you're

earning 100 rupees then you can afford

to spend 10 Rupees from your pocket now

this is practically possible in India

for people who are ultra wealthy people

who are earning 10 lak Rupees per month

they can afford to spend 1 lakh rupees

because living on 10% of your income is

only possible possible if you have

extremely extremely high income here in

India most people earn somewhere around

between 50,000 rupes per month to 1 lakh

rupes per month so how do we manage this

tiny salary or the income but we still

be financially healthy this is what I'm

going to talk about so to manage our

tiny income we need to learn four very

very important Financial Concepts number

one Japanese Secret Of Money Management

called kbo number two secret of IT

project management called rag method

number three my simple rule that I'm

trying to use from a number of years is

50 25 25 and concept number four which

is where to then exactly invest this

tiny salary so that you always remain

financially healthy let me walk you

through all those four Concepts in a

very very simple language so first is

Japanese money management technique

called kbo now kbo literally means

household Financial Ledger motoo heny a

famous journalist from Japan back in 194

four invented this methodology called

kbo as part of this methodology Japanese

men will give all their income to their

wives I don't know how many of Indians

are doing that but if you're doing that

let me know in the comments now what

wives will do with this money is they

will categorize every single spend that

they're making throughout the month into

four broad buckets so they will

literally write down every single spend

in a physical Ledger called kbo and

we'll categorize it into four main

buckets number one needs number two

wants number three cultural spend and

number four unexpected spend now this

gives them very good handle of where the

hell this money is going and this

becomes very very important for Indians

because we are spending a hell lot of

money using UPI not having any clue

where all our money is going so what we

need to do is to follow this methodology

get a physical notebook and start

categorizing your spend into four key

buckets but I'm going to take this one

step further and break down these four

categories into something that is more

relevant to us so first bucket that is

needs we are going to break it down into

six subcategories of spend rent food

clothing travel for work utility for

bills and insurance just in case you're

wondering why insurance is included in

needs Please be aware that medical

inflation in India is right now at

all-time high running at 15% twice as

the retail inflation on an average

Indians are getting heart attacks 10

years before Americans so without having

Insurance your entire financial plan

will be wiped out in one single hospital

bill so according to me health insurance

is a basic need it's a necessity that we

need to have in our needs bucket if you

have not yet taken health insurance

ditto is an excellent Insurance platform

provider because ditto is a no spam

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your needs and we'll give you the right

insurance plan so in the needs bucket we

have got these six broad subcategories

now let's move to bucket number two

which is wants so within wants I want

you to categorize your spend into four

subcategories number one Hobbies number

two passions number three getting wasted

which is your alcohol spend your

cigarettes or whatnot and number four is

upskilling extremely important third

bucket that is cultural I want you to

break it down into three subcategories

number one is Festival expenses Dura

Puja Diwali holy Christmas whatever

wherever you're spending money during

the festival expenses all of that need

to go into this bucket second

subcategory is donations so people make

lot of donations I'm hoping you are also

doing your bit to the society and if

you're doing that please tag that into

the donations sub bucket and third most

important is all your family ritual so

if you're giving lot of shagun to your

sisters your brothers or whoever it is

please make no note of all of that money

because every single rupee makes a big

difference in your financial plan and

lastly fourth bucket which is unexpected

there is no subcategories here because

unexpected by its very definition means

unexpected you don't know where these

expenses are coming from so broadly

these are the four buckets that you need

to start writing down all your expenses

and categorizing into these four buckets

now why are we doing that for that let

me move to very very important second

concept called Financial rule of 5025 25

what is this 50 2525 this simply means

that 50% of your after tax income the

inhand income you can spend across these

four bucket so your maximum limitation

is going to be 50% 25% of your after tax

income needs to be invested for

shortterm goals I will talk about it and

remaining 25% needs to be spent or

invested into meeting your long-term

goals again I will talk about that in

detail but let me now first handle 50 %

of your after tax income how do we

really spend this into four big buckets

because immediately question you will

have is that Rahul if I'm earning 50,000

Rupees you're asking me to spend only

25,000 rupees in my needs in my wants in

my cultural spend in my unexpected spend

how the hell I am going to manage that

for this let me actually walk you

through concept number three which is

what we predominantly use in IT project

management I've been IT project manager

for 16 plus years now and we use a very

powerful concept which is called rag

status people who are in it will

understand this rag so what does this

rag actually mean r stands for red a

stands for Amber and G stands for green

consider this as a traffic light so red

means stop Amber means wait and green

means go now let us assume that your

salary is 50,000 Rupees so I'm saying

50% of your 50,000 Rupees that is 25,000

Rupees is the maximum you can spend

across these four buckets but if if

you're saying that 25,000 Rupees is too

less what you need to do is categorize

your spend into rag method red simply

means those subcategories which are not

important for you and you do not want to

spend your money and you're making that

conscious Choice Green simply means that

you really want to spend money on those

categories because those are important

for your lifestyle and yellow means that

you have little choice you can't do much

about it so this is the method we are

going to use which is going to bring

prioritization on your 25,000 rupees of

spend every month let me give you a

simple walkr of what rag means to me in

a very very simple way for example in

the needs bucket personally for me rent

is a big red for me I've been spending

very little money on rent so for example

back in 2010 I came to London and I

lived in a studio flat for 3 years and

that studio flat used to cost me roughly

£700 per month and that time my salary

was close to

£3,200 per month after tax so I was

living on rent that is less than 20% of

my take-home salary many people at that

time who were with me were living in

2bhk house that was costing them around

1500 to 1600 rupees per month basically

50% of their salaries were going into

the rent maybe it was important for them

to live in a 2bhk house at that time for

me it was not that important another R

for me is clothing I hardly spend any

money on clothes right now for example

I'm wearing this t-shirt which is only

500 rupees I wear shorts which I'm very

very comfortable of course you can't see

them right now but my point is simple

that these are my two Reds and I'm

absolutely comfortable not spending my

money on rent as well as on clothing now

travel for work utility bills and

insurance for me these are my yellows

that I can't really help I have to spend

money on these but when it comes to food

this is where my green is I spend good

money on my food so for example I don't

know how many of you eat almonds but I

eat almonds every day I only eat mamra

almonds I don't know how many of you

know about the quality of mamra almonds

but they cost like $25 500 rupees per kg

premium quality so again on food I do

not compromise a lot that is my green so

what you need to do is from this 25,000

rupees you need to find your own rag for

the needs column if I look at my wants

column then I spend lot of money on my

hobbies one of them is traveling I

travel a lot in fact in last few years

I've been to 13 plus countries and I've

taken lot of cruises and so much of fun

that experience is what I crave for and

I spend my money into that particular

bucket my point is very simp simple you

can easily live on 50% of your income

and for that what you need to do is use

this Japanese method of Kobo noting down

all your expenses into these buckets and

secondly put in this rag status so that

you identify consciously which are your

Reds which are your Embers and which are

your greens and try and prioritize your

spend so far if you're liking this video

a humble request for you to hit the like

button let me know in the comments a

simple thank you and the fact that

you're liking this kind of content I

will come up with more such content for

your use at zero cost let me now move to

Fourth very very important concept that

will take you to the path of Financial

Freedom which is where to invest your

remaining 50% salary so we have to

divide this remaining 50% salary or

income into two broad buckets one is 25%

of this needs to be saved and invested

for short-term goals remaining 25% needs

to be saved and invested for your

long-term goals but before you start any

Investments please make sure that you

have emergency fund I created a full

video on emergency fund you will find

this on my channel this is a modern

approach for you to plan for your

emergency fund please do not make the

mistake of investing without having your

emergency fund now coming back to 25% of

your money being invested in short-term

goals what are short-term goals

short-term goals are all your goals that

you want to achieve in the next 5 years

for example it could be that you want to

buy a house in the next 5 years for

example you want to get married in the

next 5 years for example you want to go

for a honeymoon in the next 5 years for

example you want to take a holiday

abroad it could be anything but as long

as it is within the next 5 years and

long-term goals are those which are

Beyond five years for example you want

to plan for your retirement you want to

plan for your kids higher education for

example you're saving for your kids

wedding for example you're saving for

inheritance that you want to leave and

lastly for example you want to also

donate to Charities it could be anything

as long as it is beyond 5 years now this

video is getting really long what I

really want to do is let me know in the

comments if you would like me to give

you a very good framework of which are

the instruments you need to invest this

25% money for short-term goals and which

are the instruments that you must look

to invest your remaining 25% salary to

achieve your long-term goals which are

going to take you to the path of

Financial Freedom let me know in the

comments part two and I'll be happy to

come up with part two last but not least

if you still do not have health

insurance all of this plan may be wiped

out in a single hospital bill so make

sure you have health insurance and check

out the link that I have provided for

ditto Insurance platform an excellent

Insurance platform I hope you enjoyed

this video I will see you in my next

video Until then keep

rocking