Managing our finance wisely is one of the important things we must know. With proper budgeting and saving we can easily allocate the amount of money in our monthly income or salary. Having enough money management skills will help you to be healthy in terms of your personal finance.
Normally the primary source of income is through our hard earn money from our 9-5 hours work per week.
To be able for us to know how to budget our income we need to tabulate it. Setting percentage of our income is the primary purpose of this article.
The rule of thumb is to save first then after that everything will go to our expenses. Savings normally is setting aside a percentage of your income by depositing it to a bank. Expenses include house rental if you are renting, utility bills payment, transportation, insurance, loan, and other expenses.
I learn from my professor, Vince Rapisura, author of Learning Wealth book, the 5-15-20-60 rules in budgeting. Some banks now have their own application on their online banking so that you can have a separate account to allocate your expenses or you can use to put some money to your financial goal such as travel, emergency fund, and the likes. Some banks also like here in Singapore has an application to analyze the amount of money you spend. There are graphs also to monitor how much money that goes to your expenses.
Here is a rule you apply to allocate of your income.
- 5% – insurance
- 15% – savings
- 20% – borrowings, loan, investment
- 60% – expense.
The 5% insurance will be your protection. This is just in case there is something happened to you such as illness which is not part of your insurance, disability, death, etc.
Your savings should include emergency funds which is equivalent to 9 months of your expense and 6 months equivalent of your income. Emergency fund should only be used for loss of job, illness not covered by insurance, major house maintenance or any major incident in life.
If you do not have debt, then it’s good for you. So possibly you can put it to your expense budget or add the 20% to your savings.
Other people who has passive income normally create bigger savings. Normally poor or middle class do not have the passive income.
Part of our advocacy here in Better and Free is to create a learning tools how to have passive income online such as Amazon E-Book Publishing and Blogging. Having a passive income will give your way to earn money while sleeping or just in case you lost your job, you have a security aside from emergency fund.
Hope you learn from us the budgeting of your money. Based on your experience how to do you budget? Is it the same above or you have your own way? Please comment below or email us for some questions that will help you how to manage your money.
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