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Resist the urge to spend more with the 50-20-30 guide

No matter what our age, it can seem difficult to spend less than our salary and still save.

While saving is definitely good, it is also important to figure out how much to spend and how much to save.

While saving is definitely good, it is also important to figure out how much to spend and how much to save.

No matter what our age, it can seem difficult to spend less than our salary and still save.

Personal expenses, taking care of family, buying gadgets, travel and more can eat up our money.

It’s important to balance spending with your salary, though, and to save as well.

When new graduates get their first pay cheques, the temptation to spend is strong. And as employees reach their late 20s or 30s, and rise up the ranks or make more money, there is a temptation to create a lifestyle based on an assumption that salaries will continually increase.

From iPhones and designer wear to vacations and nice meals in restaurants, there is always more to buy.

Combine that with paying for household expenses such as food or a mortgage and occasional unexpected expenses such as an accident, and it seems hard to save.

Big life events such as a wedding add to the pressure.

The key question to ask, though, is whether you want to spend your money now and face a shortfall in the years ahead or to save now and be able to live better later?


While it’s tempting to spend now, financial experts advise spending within your means and also saving, along with investing so that your savings compound to larger amounts.

Some good news, based on a recent 3-Generation Survey by insurer Manulife, is that millennials in Singapore are splendid savers: 55 per cent of them are already saving for the future and start at the age of 27, compared to Gen Xers starting at age 35 and baby boomers who started only when they turned 40.

While saving is definitely good, it is also important to figure out how much to spend and how much to save.

A convenient guideline is the widely-used 50-20-30 rule, whereby you spend 50 per cent of your take-home income on essentials, put 20 per cent into investment and savings, and use the remaining 30 per cent for your lifestyle.

Breaking it down a bit further, investment management firm Fidelity suggests a 50-15-5 rule. Aim to allocate no more than 50 per cent of your take-home pay to must-have expenses such as housing, food, healthcare, transport and insurance. Put 15 per cent into retirement savings, and 5 per cent into savings that you can use as an emergency fund. You can use the remaining 30 per cent for other spending.

“Our research found that by sticking to this guideline,” Fidelity noted, “there is a good chance of maintaining financial stability now and keeping your current lifestyle in retirement.”

Paying yourself first, with automatic transfers, can help make sure that you stay on track.

An easy way to do this, personal finance advisory Seedly suggests, is to set up three accounts and transfer parts of your salary to them the day after you receive it.

If you make S$5,000 a month, for example, put S$2,500 into your account for expenses, S$750 into an investment account and S$250 into savings.

You can use the rest for everyday expenses, whether it’s clothes or restaurant meals or travel.

If 50 per cent doesn’t give you enough for your essential expenses, investment advisory firm The Motley Fool suggests that you may have to re-examine your spending habits, including where you shop and what products you use. “For example, you may want to compare the different supermarkets in Singapore.”

That 30 per cent is important too, so you can take care of yourself and have some fun. Spending a little on things that make you happy can make it easier to save.


If you’re going to stick to your plan and still enjoy life, three more steps are essential.

First, put together a list of the essential expenses that you’ll pay for with the 50 per cent. Even better, put together a full budget that shows your income and where all your money will go.

If the expenses are too high, Fidelity suggests that even small changes such as turning the air-conditioning up a few degrees, buying groceries when they are on sale and taking lunch to work sometimes can make a huge difference.

Second, do more with the 15 per cent than let it sit in a savings account earning very little.

You can automatically put the money into exchange-traded funds (ETFs) such as the SPDR STI ETF to invest in stocks or the Nikko AM SGD Investment Grade Corporate Bond ETF to invest in bonds.

Alternatively, you could put your money in a robo-adviser such as AutoWealth or, which help select investments that match your goals and risk profile.

Finally, control impulse purchases. While it’s tempting to buy during a sale or keep up with colleagues, you can avoid wasteful expenditures if you stop making impulse purchases and put your money into investments.

While guidelines such as 50-20-30 or 50-15-5 may seem simplistic, research shows that they work.

The 30 per cent that you can use as you like lets you enjoy life and reward yourself.

Rather than overspending or not knowing where your money goes, using clear parameters can help make sure your salary meets your spending needs and allows you to save something too.

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