Feeling out of cash? Manage it using 4-3-2-1 Rule!
Saving is a virtue. From our early years, we came across several concepts and advices about saving from the older generations. However, along the way we have several misconceptions. From my experience, most people lack approaches and exposure on how to manage individual revenue and expenditure. So, let's focus into this area while leading a healthy and wealthy lifestyle!
Firstly, record down your income everymonth. Income refers to salary, investment's dividends, business income, rentalincome and others. For this amount of money, you can get your net income afterdeducting away your CPF's contribution.
For example, if someone's net incomeis SGD 5,000, then his income's allocation will be as follow using the 4-3-2-1budgeting rule:
Rule 4-3-2-1
40%-SGD2,000: Personal Expenses
Personal expenses include dailyexpenses like Food, Transport, Groceries, Bills and Entertainment expenses. Itshould preferably be 40% of our net income. If we can manage well and limitourselves to this budget, we can reward ourselves for a short get-away holidayor pamper ourselves. However, you must cut down on those unnecessary expenses.
30%-SGD1,500: Protection and Wealth Accumulation
Protection includes several areas suchas accident, basic hospital cover, life and income protection planning.Insurance is the most commonly known solutions and it should preferably be 10%of your net income. The remaining 20% would be distributed in half for wealthaccumulation. Part of it goes to the mid-term investment, targeting a 3-5%interest while the other half put in the long-term investment to gain aninterest of 7% and above.
20%-SGD1,000: Loans
Long-term loans such as the car,housing and education loan should preferably be 20% of our net income. Thingsto note is for credit card loan, it can only be classified under personalexpenses since we used the card to spend on our daily needs most of the time.If your budget is more than this, it may not be a right time to own theseassets. If you are debt free you could preserve this budget for investment orplanning usage.
10%-SGD500: Planning Fund
For Singles, this budget can be usedfor personal planning such as Wedding fund, Down payment for BTO, holidaytrips, or to set aside as an emergency fund. For married couples, this can beused for children's education planning, family trips or family funding.
With that, lets digress further usingthe 10% budget for Income protection portion. Sometimes we come acrossindividuals that are over-committing themselves more than what they couldafford which resulted in financial distress rather than freedom.
Let me share with you how to achievethis by distributing this budget across A to F for references.
AccidentalCover
-Reimburse the medical fees thatcaused by accident and consultation with the specialist.
-Temporary disablement caused byaccident, providing you with an income.
-Unexpected death, lump sumcompensation will be given to the family.
BasicHospital Cover
-Private or government's hospital andmedical fees.
-Pre and post hospitalisation fee.
Critical Illness Coverage
-If you suffer from the severeCritical Illness stages, the pay-out will cover the loss of income neededduring recovery phase.
-According to Raffles Medical Group, 1in 3 people in Singapore will be diagnosed with cancer some time in theirlives, and about one in four deaths in Singapore are caused by cancer.
(https://www.rafflesmedicalgroup.com/health-resources/health-articles/cancer-happens-to-1-in-3-singaporeans/#:~:text=Cancer-,Cancer%20Happens%20to%201%20in%203%20Singaporeans,Singapore%20are%20caused%20by%20cancer.)
DisabilityCoverage
-Whole life disability pay-out usedfor medical expenses and cover living expenses.
-Secure income of temporarydisability.
EarlyIllness Coverage
- If you suffer from early CriticalIllness stages, the pay-out will cover the loss of income needed duringrecovery phase.
-As this condition is diagnosedearlier and with medical advancement, chances for full recovery is higher.
FamilyProtection Solutions
-Providingfamily income protection for the dependants who is relying of the solebreadwinner income which includes, living expenses, liabilities and the abilityto support young adolescent till of independence age are well taken care of inthe event the sole breadwinner of the family is not around.
