13/07/2021
What do you think about this budgeting rule?
For those without any loans, is it acceptable to have 70% of your salary going towards expenses each month?
You’ve probably heard of budgeting and how it helps you manage your income and expenditures for both short- and long-term goals, but there are in fact many approaches you can choose from. Here’s one rule you may or may not have heard before – the 40-30-20-10 rule.
1. Spend less than 40% on loans
You should not be spending more than 40% of your monthly income on loans. Loans are long-term liabilities that weigh heavily on your finances and restrict the amount of free cash you have on hand for emergencies, so think twice if you’re intending to borrow beyond your means or commit to unrealistic monthly repayments.
2. Less than 30% should go into your expenses
Feel free to indulge in an occasional treat as long as you ensure that your expenses do not exceed 30% of your monthly income. Follow this guideline to maintain a consistent standard of living over the years and prevent any shopping sprees from going out of hand.
3. Save at least 20% for financial goals such as retirement
Saving may be a good habit in general, but it should not be the end in itself. The money you set aside needs to be channelled towards certain financial goals to be more meaningful. To enjoy a more secure retirement, you should work towards that target by saving at least 20% of your income every month. To get a clearer idea of how much you should be saving, consider using our savings calculator (bit.ly/CPFSavingsCal) and crunching the numbers yourself!
4. Save at least 10% for insurance for protection
The best plans for the future can still be subject to the unpredictability that is life. Ensure that you have some form of protection to fall back upon in times of need by saving at least 10% of your monthly income for insurance.
