A recent study by Khazanah Research Institute found that RM76 is all that an average B40 Malaysian household has left over after deducting their household expenses!
But let’s be honest here, some people who aren’t within this B40 bracket also sometimes have only RM76 leftover kan? Don’t worry, it happens to the best of us.
One Budget to Rule Them All
Developing a budget that suits your current lifestyle and long-term plans can help you avoid falling into this “RM76 trap”.
One of the most popular budgeting rules out there is the 50/20/30 rule. Created by US Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi, there’s even a book about it.
The 50/20/30 rule has been recommended by Forbes magazine, Investopedia, and NBC. It’s so popular because it’s easy to understand, simple to use, and leaves room in the budget for fun.
The Three “F”s
It’s a percentage-based rule which, according to its creators, is suitable for ALL income brackets. You simply have to divide your total after-tax income into three “F”s.
The first F, which should make up 50% of your income, is for your Fixed costs. The second, at 20%, is for Financial Goals. And finally the last F, a whole 30% of your monthly moolah, is for whatever your heart desires!
And Here’s the Step-by-Step
Step 1: Calculate your after-tax income. If you have a regular income, just look at your payslip. If you are self-employed or a freelancer, calculate your average monthly earnings after taxes.
Step 2: Calculate your fixed costs. This should ideally be within 50% of your after-tax income. If it’s more than that, take a hard look at your expenses in this category.
Step 3: Calculate the amount that you normally set aside for items under the financial goals category. If it does not already reach 20%, assign more of your income into savings or investment.
Step 4: Go crazy with the remaining 30%!
Too good to be true?
Many people have pooh-poohed the 50/20/30 rule though, saying that it’s not as universal as it claims to be.
Firstly, living standards may not be the same everywhere. For example, the cost of rental and groceries in KL or Penang would be considerably more than, say, in Kuala Terengganu.
Secondly, some complain that fun should NOT be prioritised over settling any outstanding debts and savings. Dragging out debts longer is never a good idea.
And finally, the 50/20/30 budget may not make sense for every income bracket. While it may be quite suited for most of us middle-income earners, low-income households may have no choice but to spend more on fixed cost essentials. Likewise, if you’re a high-income earner, you may have a hard time finishing your very large 30% fun quota every month!
A Budget That Works for You
It’s perfectly okay to tweak the 50/20/30 rule to suit your own financial status and priorities. For example, those in high cost-of-living areas may decide that a 60/20/20 budget makes more sense.
There’s also a rule for the people who have trouble saving anything. The 80/20 rule gets you to put aside 20% of your income in a more inaccessible savings account (like Amanah Saham) as soon as you’re paid, leaving 80% for everything else.
Whichever budgeting rule you choose, the golden rule for making it work is to stick to it! Get a budgeting app, or a very strict spouse to be in charge of finances – and NO CHEATING.
This article is brought to you by Loanstreet.com.my.
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