“It’s not your salary that makes you rich, it’s your spending habits.” – Charles A. Jaffe
Sticking to a budget takes commitment and effort. Look up “budgeting” online and you’ll get plenty of different methods. There are no right or wrong ways of budgeting and managing your finances. More importantly, your budget should be something that you’re comfortable committing to and shouldn’t cause you to stress over your finances.
What we’re about to share is a simple budgeting framework that works for all income types. Depending on your financial goals, current financial situation and comfort level, you may choose to adjust the ratios, but keep in mind that consistency is key for a budget to be successful!
The three-basket budgeting style requires you to allocate your income into three different baskets.
A common allocation ratio which you may know of is the 50-30-20 rule, which suggests that 50%, 30% and 20% of your income should be allocated to your needs, wants and savings respectively.
However, this means you are budgeting 80% of your monthly income to expenditure. If you’re looking to save more, or don’t have that much expenses to take care of, you may choose to reclassify the three baskets:
Three-Basket Framework, reclassified
In this reclassified Three-Basket framework, your income should be allocated as such:
60% Spending: Covers your needs and wants combined, as mentioned previously.
20% Investment: Money you invest to grow your wealth.
20% Savings: For emergency funds (3-6 months of expenses), savings, and debt repayments (if any).
Disclaimer: This allocation is simply a guideline, you should always set your allocation according to your income, financial situation, and responsibilities!
If your income is $4,000 a month, allocating 60% ($2,400) for spending may seem a little too much.
If your income is $400 a month, having only $240 to spend may seem too little.
No matter your income levels, it’s always highly recommended to keep track of your expenses. You can do so with expense tracking applications like Spendee, Wally, or YNAB. Alternatively, you can even do it manually on Google Sheets or Excel!
Don’t be too harsh on yourself if you haven’t been able to commit to your budget because of unexpected situations. The important part is to keep working towards your end goal! Keep in mind that money is meant to flow, and not be hoarded. Saving every cent and not allowing yourself to have fun makes you a dull person. Budgeting should be a fun process that reduces your financial stress, not cause it!
Start Budgeting Now in 3 simple steps!
Step 1: Determine your income.
If you are a working adult, just pull out your monthly paycheck.
If you are a student, include your allowance and any side income.
Step 2: Establish your spending habits.
Track your monthly spending for 1-2 months. Write down all your spending and categorise them under needs and wants. This will establish the comfortable amount of spending you have. If it is not within the estimated range of your spending budgeted, work towards reducing those components which are overspent.
Step 3: Divvy up your income based on spending.
Aim to keep your spending for needs and wants below 60% of your income. Also, make it a point to save at least 20% of your income.