Budgeting is key to meeting your goals
What is budgeting?
It is the process of creating a plan to spend your money. Contrary to popular belief, budgeting is not about reducing your expenditure but allocating it for various purposes (short/medium/long term needs).
1. To earn more or to save more?
Given a choice, earning more gives you more to spend rather than cutting down on your expenses. However, some of us have a slow salary increment. Therefore, to fully utilize our take-home salary, start by creating your financial safety net through budgeting. There are a lot of temptations to fight against when you start working. Without proper planning, we could easily overconsume. Therefore, while I encourage you to earn more, it is equally important to save more through budgeting for the unprecedented future.
2. Simple budgeting rules that work – 5/3/2 and 1/3 rule
Since everyone has different priorities in varied life stages, budgeting is more of an art than a science. Here are two simple budgeting rules that work for the majority:
Firstly, the 5/3/2 rule. Under this rule, we allocate 50% of our take- home income to our needs, 30% to wants, and 20% to savings (more suitable for foreigners).
Secondly, the 1/3 rule. Under this rule, we allocate 1/3 to short, medium, and long-term needs (better for locals). Above all, it is necessary to differentiate between our needs and wants since this will determine our priorities and the resources we
can free up.
3. How does my budgeting changes over time?
At various life stages, our budget could change according to our needs (e.g. family expenses) and our salaries can also increase. Ideally, we would want to keep our expenditure low. My advice for you is to review your budgeting and stay disciplined. If there is a temporal need for higher expenditure, it is possible to adjust your budget accordingly but ensure to monitor and adjust it once the
situation improves.
In conclusion, the key to proper budgeting is to have a plan and stay disciplined in monitoring it!
Zhang Xiao Yan
Financial Services Consultant
