Just as a government budgets its annual expenditure plan, for individuals a budget of expenses along with a financial self-audit can help to keep track of how one’s earnings are spent.

Popularised by US Senator Elizabeth Warren in her book All Your Worth -The Ultimate Lifetime Money Plan, the balanced money formula, or the 50/30/20 rule, essentially divides after-tax income into three different buckets — 50 per cent of spending on essentials such as housing, food, transportation, utility bills etc, 30 per cent on wants such as dinners and movies, and 20 per cent on savings that include debt repayment.

While it is a goal to follow, there may be circumstances that can call for a change in the proportion.

As Warren says in her book, “there are special times in life when you may shift away from the basic pattern. If your income dips — say, your hours are cut or you take a few months off work to care for a sick family member—then nearly all your money would go to must-haves, while you would cut back on wants and savings until things got back to normal. Again, there can be special circumstances that may cause a permanent shift away from the formula”.

However, while life may throw up many unpleasant surprises, in the normal course of things, it’s always prudent to plan your expenses in advance.