How my money is being used?
It’s been a busy and tiring week, what with the economy opening up, work, tales of arise and squid game.
So, this weekend it’s going to be a short post.
Background
So there were a few people who was asking me how much should I allocate my money for [ BLANK ]. It could be for car, for house, for a big purchase, etc.
It would be good to be able to have a framework to follow, but truthfully everyone is different.
The first step would be to identify your needs vs wants. It was previously shared in another post of mine (read it here). In that post I also mentioned a guidance that is frequently referred to – 50/30/20 rule.
I have also included in my template page an Excel file for you to record down what exactly is your current living expenses allocated to (Download that here).
Savings as a % of income
Firstly, I save 10% of my total income that goes directly into my emergency funds. Why we need emergency funds? Read here on my personal experience.
Secondly, if I have funds in my “Spending” account at the end of the month, then it will go into my “park aside funds” bucket either for fun money or investment money. That can be about 8% – 15% of my total income.
So in average, I have 20% of my total income as savings.
Expenses as a % of total
So then, what happens to 80% of the income?
Summary table (Rough estimate based on the last 3 years)
| Expense Item | % of Expenses | % of Income |
|---|---|---|
| Property | 25% | 20% |
| Car | 15% | 12% |
| Food | 15% | 12% |
| Insurance | 8% | 6% |
| Shopping | 8% | 6% |
| Contribute to parents | 6% | 5% |
| Investment | 18% | 14% |
| Other stuff | 5% | 4% |
Some musings
Property remains the bigger contribution and this has not taken into account of the new house that I just bought. So it will surge higher to closer to 50% of total expenses (if all others remain the same).
The expenses on car will drop significantly after a year or two as I finish paying off the car loan.
Given that 14% of total income goes to investment, my actual savings is about 34% (including the 20% savings).
However, there are a few things to consider. I am currently in the transition phase to move out. So whilst the last 3 years I have the blessings of being supported by my parents for staying at home, this will change quite a bit from next year onwards.
This means that the 14% investment spend might drop as I use that allocating for daily needs (rental, groceries, food, etc).
Closing Thoughts & My Target
My spending habits are driven mainly by the principle of minimising unnecessary spending and maximising savings & investment.
Everyone’s circumstances and availability of funds are different. So it is important to note that whilst you can use as guidance, it is important to have an allocation that you’re comfortable with.
I didn’t set it such that I achieve a certain % allocation.
However, as a target allocation for bigger ticket items, I suppose I would be comfortable with the following under my current circumstances:
- Savings & investment: 20% – 30%
- Property to stay in: 20% – 30%
- Car: 10% – 15%
- Insurance: max 10%
That leaves around 20% – 30% to spend on essentials and extra items.
