Balancing Your Money Is The Key To Having Enough

Hello and welcome to the latest edition of Dave's Thoughts Show!? This week I will be discussing about saving and how to manage it with financial rules.

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FEELING OUT OF CASH? MANAGE IT USING THE 4-3-2-1 RULE!

Written by Dave Loh

Saving is a virtue. Since our early years, we came across several concepts and advice about saving from the older generations. However, along the way, we have several misconceptions. From my experience, most people lack knowledge and exposure to managing individual revenue and expenditure.

So, let's try and focus on this area while leading a healthy and wealthy lifestyle!

The first step is to record your income every month. Income refers to salary, investment dividends, business income, rental income, etc. You can get your net income for this amount of money after deducting away your CPF contribution.

For example, if someone's net income is SGD 5,000, then his income allocation will be as follows, using the 4-3-2-1 budgeting rule:

Rule 4-3-2-1

• 40%-SGD 2,000: Personal Expenses

Personal expenses include daily expenses like food, transport, groceries, bills, and entertainment. Personal expenses should ideally take up no more than 40% of your net income. If you can manage well and limit yourself to this budget, you can reward yourself with a short get-away holiday or pamper yourself. However, it would be best if you made it a point to cut down on those unnecessary expenses.

• 30%-SGD 1,500: Protection and Money Growth

Protection includes several areas such as accident, basic hospital, life and income protection planning. Insurance is the most commonly known solution, and it should ideally be allocated 10% of your net income. The remaining 20% should be distributed in half for money growth. Part of it goes to the mid-term investment, targeting a 3-5% interest, while the other half put in the long-term investment to gain 7% and above interest.

• 20%-SGD 1,000: Loans

Long-term loans such as car, housing and education loans should ideally take up 20% of your net income. One important thing to note is that a credit card loan can only be classified under personal expenses since we use the card for spending on our daily necessities most of the time. If your budget is more than this, it may not be the right time to own these assets. If you are debt-free, you could preserve this budget for investment or planning usage.

• 10%-SGD 500: Planning Fund

For Singles, this budget can be used for personal planning such as wedding fund, down payment for BTO, holiday trips, or to set aside as an emergency fund. This can be used for children's education planning, family trips, or family funding for married couples.

With that, let us delve further into using the 10% budget for the Income Protection portion. Sometimes we come across individuals who are over-committing themselves to more than what they can afford, resulting in financial distress rather than freedom.

Do you find this saving 4-3-2-1 rule helpful? Share with me your thoughts in the comment below.

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