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Did You Know You Can Budget but Still Have FUN - No Cheating Involved!

Updated 18 Feb 2019 – By Helena Varkkey


What can you buy with RM76? A nice dinner for two in a moderately upmarket makan place? A presentable outfit for an important work meeting? Well, if you can afford this, lucky you!

A recent study by Khazanah Research Institute found that RM76 is all that all an average B40 Malaysian household has left over after deducting their household expenses! MIND. BLOWN.
 


But let’s be honest here, some people (you know who you are) who aren’t within this B40 bracket also sometimes have only RM76 leftover kan? Kaaaaan? Don’t worry, it happens to the best of us.

How come la? Earn so much every month but still can end up broke! Well it’s all about that bass – oops, budget!

 

One Budget to Rule Them All

Developing a budget that suits your current lifestyle and long-term plans can help you avoid falling into this “RM76 trap”.

One of the most popular budgeting rules out there is the 50/20/30 rule. It was created by the mother-daughter tag team, US Senator Elizabeth Warren and her (probably) favourite kid, Amelia Warren Tyagi. In fact, they wrote a whole book about it: “All Your Worth: The Ultimate Lifetime Money Plan”.

We know a lot of you are malas to read the entire book so we at Loanstreet have done the hard work for you. You’re welcome.



The 50/20/30 rule has been recommended by the likes of Forbes magazine, Investopedia, and NBC. It’s so popular because it’s easy to understand, simple to use, and leaves room in the budget for fun. Yup, you read that right - FUN! Allow us to explain.
 

The Three “F”s

This rule is a percentage-based rule which, according to its creators, is suitable for ALL income brackets. You simply have to divide your total after-tax income into three “F”s, and voilà! Sorted.

The first F, which should make up 50% of your income, is for your Fixed costs. The second, at 20%, is for Financial Goals. And here’s the FUN part: the last F, a whole 30% of your monthly moolah, is for whatever your heart desires!

 
Fixed costs Financial goals Fun
Housing loan or rent Emergency fund Jalan-jalan cari makan
Groceries Credit card repayments iFlix subscription
Car payments or transport Retirement fund Fancy gym membership
Insurance Investments Movie night
Utilities Children's education fund ANOTHER pair of shoes
Student loan repayments Other loans Daily Starbucks fix
 

And Here’s the Step-by-Step

Step 1: Calculate your after-tax income. If you have a regular income, just look at your payslip. If you are self-employed or a freelancer, calculate your average monthly earnings after taxes.

Step 2: Calculate your fixed costs. This should ideally be within 50% of your after-tax income. If it’s more than that, take a hard (and yes, we know, painful) look at your expenses in this category. Can you downgrade your internet plan? Find an additional housemate to reduce your house rent? Whatever it takes, man!

Step 3: Calculate the amount that you normally set aside for items under the financial goals category. If it does not already reach 20%, assign more of your income into savings or investment.

Step 4: Go crazy with the remaining 30%!


 

Too good to be true?

Easy to understand? Check. Simple to use? Check. Fun? Most definitely check!

BUT (and there’s always a but): many people have pooh-poohed the 50/20/30 rule, saying that it is not as universal as it claims to be.



Firstly, living standards may not be the same everywhere. For example, the cost of rental and groceries in KL or Penang would be considerably more than, say, in Kuala Terengganu. Hence, allocating 50% for fixed costs may be too much or too little depending on where you are based.

Secondly, some (boring people who don’t like to have fun) complain that fun should NOT be prioritised over settling any outstanding debts and savings. They argue that by keeping only 20% aside for financial goals, this drags out debts longer (which is never a good idea) and diminishes your long-term financial security. Well okayyyyyyyy, they may have a point there.



And finally, the 50/20/30 budget may not make sense for every income bracket. While it may be quite suited for most of us middle-income earners, low-income households may have no choice but to spend more on fixed cost essentials (as seen in the Khazanah study above). Likewise, if you are a high-income earner, you may have a hard time finishing your very large 30% fun quota every month! 
 

A Budget That Works for You

Don’t tell the Warrens, but we think it’s perfectly okay to tweak the 50/20/30 rule to suit your own financial status and priorities. For example, those in high cost-of-living areas may decide that a 60/20/20 budget makes more sense. Those with high debt may want to swap around the percentages for financial goals and (maybe less) fun.



And for those who have a really hard time trying to save anything, there’s a rule for you too! The 80/20 rule gets you to put aside 20% of your income in a more inaccessible savings account (like Amanah Saham) as soon as you are paid, leaving 80% for absolutely everything else.

Whichever budgeting rule you choose, the golden rule for making it work for you is to stick to it! Get a buku 555, a budgeting app, or a very strict spouse to be in charge of finances – and NO CHEATING, okay! 
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