• About Us
    • Fact Checking Policy
    • Ownership & funding information
    • Volunteer
  • Subscribe
  • Letter submission
    • Submissions Policy
  • Contact Us
The Online Citizen Asia
  • Opinion
    • Editorial
    • Commentaries
    • Letters
    • Comments
  • Current Affairs
    • Singapore
    • Malaysia
    • Indonesia
    • China
    • ASEAN
    • Asia
    • International
  • Finance
    • Economics
    • Labour
    • Property
    • Business
  • Community
    • Arts & Culture
    • Consumer Watch
    • NGO
    • Lifestyle
    • Travel
  • Politics
    • Civil Society
    • Parliament
    • Transport
    • Education
    • Environment
    • Health
    • Housing
  • Law & Order
    • Legislation
    • Court Cases
No Result
View All Result
  • Opinion
    • Editorial
    • Commentaries
    • Letters
    • Comments
  • Current Affairs
    • Singapore
    • Malaysia
    • Indonesia
    • China
    • ASEAN
    • Asia
    • International
  • Finance
    • Economics
    • Labour
    • Property
    • Business
  • Community
    • Arts & Culture
    • Consumer Watch
    • NGO
    • Lifestyle
    • Travel
  • Politics
    • Civil Society
    • Parliament
    • Transport
    • Education
    • Environment
    • Health
    • Housing
  • Law & Order
    • Legislation
    • Court Cases
No Result
View All Result
The Online Citizen Asia
No Result
View All Result

Simplify your budget with the 50-30-20 rule

by onlinecitizen
15/05/2017
in Finance
Reading Time: 6 mins read
0

by ValuePenguin
With unexpected events and irresistible cravings hiding in every corner of our lives, controlling our expenditures on a daily basis can be a difficult task. However, just because it’s difficult to do, it doesn’t mean we can ignore it completely.
One way to keep our spending habit in check is to create a budget and try to stay within the limits that you have set for yourself. However, planning out your budget and following it are different matters altogether. A common problem is that it is annoying to have to keep track of every little expenditure that you make. While most people begin this budgeting process with great enthusiasm, they soon give up and revert to their old ways.

Photo from Shutterstock.com
However, budgeting is an important part of achieving long-term financial happiness, as it is also crucial in helping you set some money aside for your retirement. According to a recent survey conducted by HSBC, seven out of 10 working Singaporeans above the age of 45 say they would like to retire within five years. This is not possible unless you have a substantial level of savings.

What is the solution? Is there any method that you can consistently follow to acquire a disciplined approach to spending? How can you ensure that you put some money aside every month for your retirement? The 50-30-20 rule, developed in part by Elizabeth Warren, is a method that will allow you to simplify your budget and plan for your retirement without having to spend the beginning of each month figuring out how to allocate your money.

Here is how this method works.

What is the 50-30-20 rule?

The 50-30-20 rule advocates splitting your income into three categories:

  • 50% should be spent on your essential needs;
  • 30% should be used for discretionary spending;
  • 20% should go towards your savings, investments, and emergency expenses.

Suppose you earn S$7,000 a month, after all taxes and deductions. According to the rule, S$3,500 should be spent on your needs, S$2,100 should be used for your wants, and the remaining S$1,400 must be used for your savings and investments. Of course, this is easier said than done. But it is possible to follow this plan if you allocate your money based on the bracket an item falls into.

Spending on your needs – 50% of your income

This includes expenditures such as grocery shopping, housing society bills, Singapore Power bills, and fuel. This category also includes irregular and compulsory payments, such as annual life insurance premiums or car insurance premiums. Basically, your “necessary spendings” include everything you need in order to continue your regular life.
If you are to cut back on your expenditure, you may have to re-examine some of your spending habits on these categories of spending, including where you shop and what kind of products you use. For example, you may want to compare the different supermarkets or retail outlets in Singapore and choose which of them to shop at. For example, ValuePenguin’s study found that NTUC FairPrice tends to lead the market in terms of grocery prices.

Discretionary spending – 30% of your income

Discretionary spending is the money you allocate towards those activities that you enjoy, but don’t need in order to survive. This expenditure cannot be classified as “essential,” but it does help to improve your quality of life. Items which fall into this category can include going to the movies, dining out, or going on a holiday.
To control this part of your expenditure, you must make sure that you do not classify your ‘wants’ as ‘needs’. While you may want to spend more on certain things by labeling them as essential, thinking twice about a purchase may help you decide whether you really need it. For example, a monthly budget of S$2,100 for discretionary spending allows you to use up to S$70 per day. That amount may not go too far given that Singapore is one of the most expensive cities in the world where even a pint of generic beer can cost around S$15-S$20.
Therefore, make a habit of keeping track of how much you’ve spent each week on these discretionary spending areas. If you are planning a big trip overseas, try to cut back on your other discretionary spendings to save up enough money. If you don’t have much room for change in your budget, you can also use a great credit card to earn cash back or miles to help you save extra 3-5% on your spending.

Savings, investments, and emergencies – 20% of your income

Saving and investing money for your retirement is absolutely essential, but not always easy because you cannot benefit from it immediately. Therefore, you can use the 50-30-20 rule to force yourself to allocate 20% of your net income towards savings at the beginning of the month. If you wait till the month-end, there may be little left over to invest.
Also, ensuring that you’re investing in the right products is a good way to begin. While you may feel that putting your money into a term deposit will be a profitable option, investing in stocks and mutual funds may yield higher returns. To do this, you may want to compare the terms that different online brokerages operating in Singapore offer. The trick is to find an online broker that charges the lowest fee possible, so that your trading costs don’t eat into your returns.
You should also set aside some money for emergency expenses, especially medical and hospital bills. If you feel there isn’t enough money to cover your savings as well as emergency expenses, you can try using some of the money meant for your discretionary spending towards this.

Sticking to the 50-30-20 rule and some final thoughts

The 50-30-20 rule is easy to follow because it shows you where your biggest expenses lie, thereby allowing you to cut out or reduce certain expenditures. However, this is not a rigid approach that must be followed in a certain manner. It’s a guideline to help shape a healthy spending habits, and you could re-allocate funds between categories if the situation demands.
For example, if your monthly income is S$7,000 and your expenses vary each month, you could allocate your money in the following ways:

Salary: S$7,000 January February March
Essential (50%) S$3,500 S$4,000 S$3,000
Discretionary (30%) S$2,100 S$1,000 S$2,500
Savings and investments (20%) S$1,400 S$2,000 S$1,500

The 50-30-20 rule is meant to help identify and cut back on unnecessary expenses (especially recurring ones which add up and take away large chunks of your money) and force you to consistently save money for your retirement. Maintaining a written record of your spending will help you avoid making stressful mental calculations each month. It is true that it will require a little effort to cut back on your discretionary expenditure. But if you are able to do this, your post-retirement self will thank you in the future.
This article was first published at ValuePenguin.

For just US$7.50 a month, sign up as a subscriber on The Online Citizen Asia (and enjoy ads-free experience on our site) to support our mission to transform TOC into an alternative mainstream press.

Related Posts

Pritam Singh’s speech on HDB affordability and accessibility
Politics

Pritam Singh’s speech on HDB affordability and accessibility

08/02/2023
Taiwan 34th Lantern Festival celebration signifies return to pre-pandemic normalcy
Arts & Culture

Taiwan 34th Lantern Festival celebration signifies return to pre-pandemic normalcy

08/02/2023
Six dead and eight injured in accident at Genting Highlands
Malaysia

Six dead and eight injured in accident at Genting Highlands

08/02/2023
Labour

Close to 70% of working Singaporeans above age of 65 earns less than S$2,500 a month

08/02/2023
Minister K Shanmugam appears to lack understanding of case where judge found bodycam footage debunked police officers’ sworn affidavits
Politics

Police investigations into conduct of WP’s Pritam Singh and Faisal Manap still ongoing: K Shanmugam

08/02/2023
Malaysia’s seven-time Asean Para Games champion seen selling tissues at Bukit Bintang
Malaysia

Malaysia’s seven-time Asean Para Games champion seen selling tissues at Bukit Bintang

08/02/2023
Subscribe
Connect withD
Login
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of
Connect withD
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
0 Comments
Inline Feedbacks
View all comments

Latest posts

Pritam Singh’s speech on HDB affordability and accessibility

Pritam Singh’s speech on HDB affordability and accessibility

08/02/2023
Taiwan 34th Lantern Festival celebration signifies return to pre-pandemic normalcy

Taiwan 34th Lantern Festival celebration signifies return to pre-pandemic normalcy

08/02/2023
Six dead and eight injured in accident at Genting Highlands

Six dead and eight injured in accident at Genting Highlands

08/02/2023

Close to 70% of working Singaporeans above age of 65 earns less than S$2,500 a month

08/02/2023
Minister K Shanmugam appears to lack understanding of case where judge found bodycam footage debunked police officers’ sworn affidavits

Police investigations into conduct of WP’s Pritam Singh and Faisal Manap still ongoing: K Shanmugam

08/02/2023
Malaysia’s seven-time Asean Para Games champion seen selling tissues at Bukit Bintang

Malaysia’s seven-time Asean Para Games champion seen selling tissues at Bukit Bintang

08/02/2023
53-year-old Singaporean worker dies after glass doors topple on him, fourth workplace fatality in 2023

53-year-old Singaporean worker dies after glass doors topple on him, fourth workplace fatality in 2023

08/02/2023
Gerald Giam: Providing affordable homes for all Singaporean families

Gerald Giam: Providing affordable homes for all Singaporean families

08/02/2023

Trending posts

Cognizant India transfers staff to work in Singapore as recently as this year

Local IT grads can’t find jobs while engineers constantly transferred from India to work in SG under CECA

by Correspondent
05/02/2023
112

...

No response from Josephine Teo on whether Mediacorp has been instructed to stop coverage of SMT circulation scandal

No response from Josephine Teo over alleged blackout of coverage by Mediacorp over SMT circulation scandal

by Terry Xu
06/02/2023
13

...

Adani’s brother runs SG company and registers as director with local ID

Adani’s brother runs SG company and registers as director with local ID

by Correspondent
03/02/2023
26

...

They have done a fine job of confusing us about the jobs situation

They have done a fine job of confusing us about the jobs situation

by Augustine Low
01/02/2023
48

...

Japanese-Canadian junior high school girl breaks national record with 3km in 9:02 mins

“I want my normal life back,” Sherry Drury withdraws from National Junior High School Tournament due to overheated public attention

by Yee Loon
06/02/2023
4

...

19-year-old delivery rider in China covers 5km in 22 minutes to deliver antivenom to woman who had bitten by snake

19-year-old delivery rider in China covers 5km in 22 minutes to deliver antivenom to woman who had bitten by snake

by Yee Loon
06/02/2023
5

...

May 2017
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
293031  
« Apr   Jun »

The Online Citizen is a regional online publication based in Taiwan and formerly Singapore’s longest-running independent online media platform.

Navigation

  • Editorial
  • Commentaries
  • Opinion
  • Politics
  • Community

Support

  • Contact Us
  • Letter submission
  • Membership subscription

Follow Us

  • Facebook
  • Twitter
  • YouTube
  • Instagram
  • Fact Checking Policy
  • Privacy Policy

© 2022 - 2023 The Online Citizen Asia

No Result
View All Result
  • Opinion
    • Editorial
    • Commentaries
    • Comments
  • Current Affairs
    • Malaysia
    • Indonesia
    • China
    • ASEAN
    • Asia
    • International
  • Finance
    • Economics
    • Labour
    • Property
    • Business
  • Community
    • Civil Society
    • Arts & Culture
    • Consumer Watch
    • NGO
  • Politics
    • Parliament
    • Transport
    • Education
    • Environment
    • Health
    • Housing
  • Law & Order
    • Legislation
    • Court Cases
  • Lifestyle
    • Travel
  • Subscribers login

© 2022 - 2023 The Online Citizen Asia

wpDiscuz