Keeping our spending under check on a daily basis might be challenging due to the prevalence of unforeseen occurrences and appealing cravings. While it may be difficult, that’s no excuse to fully disregard it. Creating a budget and working within the constraints you’ve set can help you reign in your spending habits. However, having a budget and sticking to it are two whole different things. Keeping track of every single dollar you spend can be a real pain in the rear. When it comes to budgeting, most people start off strong but eventually give up and go back to their old ways.
But budgeting is essential to long-term financial pleasure because it forces you to put some money aside each month—critical when it comes to saving for retirement. In a survey conducted by HSBC, they found that seven out of ten Singaporean workers over the age of 45 plan to retire within the next five years. This is only achievable if you have a considerable amount of savings.
How do we fix this? Is there a reliable plan of action you can take to establish discipline in your financial ways? In what ways can you guarantee that you save aside money each month for your golden years? Using the 50-30-20 rule, which was devised in part by Elizabeth Warren, you can streamline your budget and save for retirement without having to make those decisions at the start of every month. Here’s the deal with this strategy.
What is the 50-30-20 rule?
According to the 50-30-20 rule, your earnings should be distributed as follows:
50% should go toward meeting your requirements;
30% should be set aside for discretionary spending;
20% should be allocated to emergency funds, investments, and savings.
Let’s pretend that your net monthly income is S$7,000. The guideline states that you should set aside S$1,400 for savings and investments while spending the remaining S$3,500 on necessities. Of course, in practice, this is easier said than done. But if you budget according to the category each item belongs to, you can stick to the plan.
50% of your money should be spent on needs
This entails costs like those incurred for groceries, housing society dues, Singapore Power fees and gas. Insurance premiums and vehicle registration fees fall into this category, as do child support and alimony payments. The term “necessary spending” is used to describe the costs of maintaining a minimal level of regularity in your life.
If you want to save money, you might have to make some changes to how, when, and where you shop, as well as the kind of things you buy. You might, for instance, wish to research your shopping options in Singapore so that you can pick the best supermarket or store. According to ValueChampion’s analysis, NTUC FairPrice consistently offers the lowest grocery store pricing.
30% of your income should go toward discretionary spending
Your discretionary budget is the sum of money you spend on things you want to do but don’t have to. This purchase isn’t strictly necessary, but it will definitely enhance your life. Activities such as going to the movies, eating at a restaurant, or taking a vacation fall under this category.
Make sure you don’t define your “wants” as “needs” in order to keep this portion of your spending under control. Labeling something as “essential” can make you spend more money on it, but giving it some serious thought can help you figure out if you actually need it. If you have a monthly discretionary spending allowance of S$2,100, you can spend as much as S$70 per day. Given that Singapore is one of the world’s most expensive cities, where even a pint of generic beer may cost between S$15 and S$20, that sum may not go very far.
So, make it a weekly ritual to record how much you’ve spent on these extraneous categories. Taking a long vacation abroad requires significant savings, so if you want to go, it’s best to limit your other spending when possible. A good credit card that offers cash back or miles can help you save an additional 3-5% on your expenditures, even if you don’t have much wiggle room in your budget.
20% of your income should go into savings, investments, and emergencies
Putting money aside and saving it for your future retirement is crucial, but it can be difficult because you won’t see any immediate returns. As a result, the 50-30-20 rule can be used to ensure that you save at least 20% of your monthly take-home pay on a consistent basis. Waiting till the end of the month could leave you with no spare funds for investment.
A smart first step is checking that you are purchasing quality merchandise. You might think a term deposit is a safe and sound way to invest your money, but the returns on equities and mutual funds could be far better. You can accomplish this by comparing the services offered by several Singapore-based online brokerages. Finding an online broker with a minimal trading fee is essential to maximizing your profits and minimizing losses.
You should also have some cash on hand to cover unexpected costs, such as those associated with medical care. You can redirect some of the money you had planned to spend on discretionary items toward saving and emergency costs if you find yourself short.
Conclusion
The 50-30-20 guideline is simple to implement because it highlights your biggest outlays and provides straightforward targets for reduction or elimination. This is not, however, a hard-and-fast rule that must be strictly adhered to. This is only a suggestion to help you establish good spending habits; you may always move money around as needed.
If, for instance, your monthly expenses average out to be S$7,000 and your income is S$7,000, you could divide your cash as follows:
The 50-30-20 guideline is designed to help you regularly prepare for retirement by identifying and reducing wasteful spending (especially recurring ones that build up and take away huge amounts of your money). Keeping a monthly spending log will relieve you of the mental strain of figuring out where your money went. It’s true that reducing your spending on luxuries will take some work. Your future self in retirement, however, will be eternally grateful if you are able to accomplish this.