50/30/20 Rule: How I'm Applying It Now

The 50/30/20 rule is a convenient guideline for anyone with an income. In an environment where one is constantly bombarded by product advertisements such as the latest phones, lifestyle trends etc. it can be very easy to succumb to your temptation and buy something you don't need. 

Enter 50/30/20 Rule.

This rule advocates dividing your income into three separate, broad categories. Half your income (50%) is used for essential needs; 30% on lifestyle/wants; 20% on savings and investments.

An quick example would be: if John earns $5,000 a month, $2,500 would be budgeted for his essential needs, $1,500 on his wants and lifestyle and the remaining $1,000 on savings and investments. This all seems easy on paper. But we all know that life is not that straightforward.

Personally, when I started work at 26 (I mean full-time, 8am-6pm job), I chanced upon this and I assumed it would be easy enough to follow. I knew I had a wedding, a future home and renovation to save for. All these were important goals and I knew I had to work my way to it. However, as I fell into the trap of delaying the tracking of my expenses or even budgeting. I fell way behind. I hit some savings goals but missed others. Now I am playing catch-up.

To make up for lost time, I have been reshuffling which categories the percentages apply to. Right now, I am saving and investing an estimated 50% of my monthly income. The rest I spend on essentials. Having a child and knowing that someone else is dependent on you for their survival is really a wake-up call (I'm not advocating having a child just to experience this epiphany). But my wife and I really had a shift in mindset in recent times on what to do with our finances and we are setting goals and checkpoints to ensure that we are on track.

So, is the 50/30/20 rule for you? It can be! As I mentioned earlier, this rule really just serves as a guideline and you can be flexible to adjust the proportions allocated to each category. The critical point is once you have fixed a certain spending/saving/investing rule, stick with it. Maybe do a review after 6-12 months but keep going at it. It is pointless to change month after month because you won't be forging your financial discipline nor will you know what is working for you.

In the next couple of posts, I'll be sharing how we plan to tackle our upcoming BTO loans, the importance of a family financial 'summit' and how I am tracking my expenses.

Share with me your thoughts and comments on the 50/30/20 rule and things you like to read about!

SG FI Dad, out.

Automating Investment for Passive Income

Is A.I. the inevitable way of the future?

Things can get hectic when one is a parent with a full-time job, a baby to care for, bills to consolidate and pay, chores around the house to do etc. You get the idea. Parents can get busy very fast but apart from these responsibilities, one has to make sure that you have sufficient funds for your child’s education and your own retirement. 

Enter Robo-Advisors. Robo-advisories are digital platforms that provide automated, algorithm-driven financial advisory and investment services with moderate to minimal human intervention. What this means is it takes a load off your shoulders in terms of seeking out investment opportunities and focus on things that matter to you as a parent. I’m sure you won’t want to miss any of the milestones/achievements of your little ones. 

Of course, all this comes at a price. Management fees that robo-advisories command tend to hover between 0.2% - 1% of either the sum invested or your current portfolio size. 

Time is a priceless commodity that can be burnt so quickly.

More importantly, this allows us to save on a precious commodity that is priceless: Time. Setting aside a fixed sum for investment every month allows one to build up a sizable portfolio over time. Investing this way also allows you to Dollar Cost Average (DCA).  This means that you are purchasing a target asset/stock in periodic intervals which may reduce the impact of volatility on the overall purchase. “Time in the market is better than timing the market”. This is a simple yet important quote that resonates well with me. Over time, your portfolio will likely ride out any blips in the market.

After reading this short post on robo-advisories, if you are interested to find out more about the robo-advisory I currently use, you may check it out here. This is just a small gesture of thanks and a win-win for both of us as we both get up to $10,000 SGD of funds deposited managed for free for a period of 6 months. 

Share with me your thoughts and comments on automated investing and Robo-Advisories!

SG FI Dad, out.

Building an Emergency Fund

‘Save for a rainy day’ is a phrase that has been repeated countless times by my parents since I was young. As I come to understand their upbringing and background, I can see why they subscribe and believe that having an emergency fund is so important (I will delve deeper into this mindset in another post).

Having read Dave Ramsey’s ‘Total Money Makeover’, this call to action was reinforced and a wake up call to me. With a newborn child around the house now, it is more important than ever to have an emergency fund to provide buffer for life’s curve balls. I am sure we don’t want to be in a situation whereby unexpected bills like air-con breakdown or replacing of faulty car part cause us panic and stress over whether we are able to make ends meet for that month. This is why an emergency fund is important. It tides you over unexpected situations which may be trivial or even those that are life-changing such as temporary unemployment.

Start small. The first step towards an emergency fund is putting aside a sum of money whether it be big or small. Your initial emergency fund should be $1000. To some this might not be a big sum and can be accomplished right off the bat, while to others, it may take some time to complete stashing this emergency fund. IT DOESN’T MATTER. This is your journey and everyone progresses at their own pace. What is more important is to be disciplined in setting aside money to build up that initial $1000.

Keep pushing yourself. After putting aside that $1000, don’t stop there. Build on it. The suggested emergency fund size for individuals is anywhere from 4 – 6 months of expenses but for simplicity’s sake, I am aiming for $10000 of liquid cash for my emergency fund. You can adjust this sum based on your needs and expenses.

When should you use it? In an emergency situation, and I don’t mean when there’s a sale on some E-Commerce platform, and you need to pay the bills, you can reach into your emergency fund. Essential things at home can become faulty and breakdown, hospital bills (touch wood but this can be better handled with insurance coverage) or even getting laid off due to restructuring in your company. Getting hit with this without the necessary buffer can set one back on their personal finance journey so utilize your emergency fund wisely and prudently.

What’s next? After using a sum from your emergency fund, you should try to replenish it steadily until it is back to the amount you set out for yourself. This helps prepare for future emergencies so that you don’t put yourself in a precarious position having just surviving one.

Share with me your thoughts and comments!

SG FI Dad, out.