For many people, it has become an irresistible spectacle when they across events that affect their daily lives, our day to day operations revolves around expenditure, earning income and how best to manage it. However, how difficult it seems to have a budget and adhere to it, you should make it a personal habit to have goal limits to help you spend according to your budget. A lot of people do start the whole budgeting thing with a lot of energy but tend to go slow about it over time as it is tiresome to keep expenditure records.
Budgeting is one of the most successful tools to use if you want to achieve financial freedom and happiness as well. This will help to achieve your personal goals and your long-term investment plans such as retirement funds. In times of desperate measures, emergency funding comes in real handy. Alternatively, you can always approach licensed money lender in Singapore for quick personal loans.
According to some recent survey conducted on Singaporeans by HSBC, it was discovered that out of ten working Singaporeans seven of them are over the Age of 45 years. For instance, if they would like to retire after a period of like five years, would they have achieved to save substantial saving for their retirement? Well, it’s possible not unless they get to plan early enough. There is a method however that can help one to be able to budget their income correctly and get to save more. Elizabeth Warren came up with a 50-30-20 rule that can help a majority of the working community to simplify their budget and have to plan for their retirement each month with a lot of ease. Here is how this method works.
What is the 50-30-20 rule?
This rule does advocate for allocating your income into three sections;
- 50% should be allocated to your basic needs
- 30% should go to discretionary expenditure.
- 20% should be allocated to your savings, emergency expenses and investments.
For instance, if your monthly income is S$6,000 after all the taxes are deducted. You should spend S$3000 on your basic needs, S$1800 should be purposely be used for your recurrent wants, and the remaining S$1200 should be spent on investments and savings. This plan is the best that one can work with to be successful in income budgeting
50% allocation to an individual’s needs
The 50% allocation of your income should be used to finance your recurrent expenditure, such as housing, society bills, shopping, groceries, and electricity bills. This bracket may further be expanded to include the compulsory and the irregular payments as well; these may include annual premiums for life and car insurance. This should cover all the things that you need to make your life comfortable to live.
Over time you may consider cutting on your recurrent expenditure. However, you need to be careful when making such a decision. Consider all factors when settling on cutting down your spending expenditure. Check on the places you do your regular shopping and establish the most affordable stores to do your shopping and save more.
Set 30% to discretionary spending
These refer to the spending that you allocate to all the activities that you love being engaged in, but you can still do without them. This type of expenditure cannot be described to be essential, but it is important to help one to improve their life. Some of the actives that fall under this category include going for a holiday, going for a recreational trip, going to watch a soccer game or going out for dinner.
A lot of individuals make a huge mistake by classifying these type of wants as needs. Some will choose to spend a lot of their income on this items and tend to classify them as essential. Well, you have all the freedom to decide on the crucial things that you need to make your life comfortable. The gauge on the necessary things that you should do with your discretion budget. For instance, if you allocate S$1800 you can do your daily estimate spending amount and stick to that budget of about S$60 a day.
Usually, ensure that you make a common habit of tracking all your expenditure more especially on the discretionary to ensure that you do not overspend. Cut on the available optional budgets to save on more for the more expensive expenditures. Use of the available offers that come with using credit cards to save more cash for your recurrent expenditure.
Set 20% to emergencies, Savings, and investments
It is such an essential thing to invest and save money for retirement even though benefits from it cannot be seen immediately. The 50-30-20 rule can come in to make you allocate 20% of your total monthly earnings to savings. You should never wait until the month ends since nothing would have been left for such savings.
You can too invest in a good way by putting all your money in the right products. Many people do think that putting their money into a term deposit is the most profitable option to go about but then investing in mutual funds and stocks can give out greater profits than investing in a term deposit. Comparing various online brokerages that operate in Singapore do provide is something you should do when you plan on this. You will discover high returns in case you fall to a broker who charges the lowest fee possible.
Another thing that you should ever consider is setting aside a particular portion of your net income to emergency expenses that may come by such as the hospital bills. For in case your earnings won’t be enough to cover both your savings and the emergency expenses, then you should consider allocating the money meant for your discretionary spending towards them.
The conclusion to the 50-30-20 rule
With the 50-30-20 rule, you will know where the expense with the most significant part of your total income do lie, and by this, you will cut down your budget to reduce some expenditures. The 50-30-20 rule is not a rigid approach that limits one’s spending, but it’s only a guideline only to help shape someone’s spending habits. Make use of the rule and you can tell your experience with it.