50/30/20 Rule – The Guideline to Budgeting

What is it?

The 50/30/20 rule was coined by Elizabeth Warren (ex US senator) and explained in her book “All Your Worth: The Ultimate Lifetime Money Plan”. It is a simple way to budget, and a guideline for how to allocate your after-tax income into three key buckets: 50% to “needs”, 30% to “wants” and 20 to “savings”.

50% to Needs

This includes all of your essentials, i.e. your must-haves and must-dos. For example, this category covers all of your bills (utilities and phone), groceries, rent or mortgage payments, insurance premiums, and transportation. If your needs account for over 50% of your monthly income, then you may need to consider re-evaluating your lifestyle in order to meet your long-term financial goals.

30% to Wants

This includes your desires, but not necessarily items that you cannot live without. For example, this category covers discretionary spending such as dining out, vacations, extra-curricular hobbies such as wakeboarding or gym memberships.

20% to Savings

Savings are money that you set aside for future use. First, we save for an emergency fund. In other words, we save “for a rainy day”. It is inevitable that at some point in our lives, we will be faced with emergencies or crises in some way, shape or form. Conventional wisdom suggests that an emergency fund should be around 6 months of your basic spending on food, rent and utilities. Second, we save to invest. The type of investments that you choose will depend on factors such as your risk appetite, targeted return as well as time horizon. Third, we save for retirement. The sooner we start saving for retirement, the sooner we can life proof our financial wellness. While retiring before 40 is but a pipedream for most, proper planning can enable us to plan for a more comfortable retirement when we are old and grey.

 

Conclusion

Ultimately, this is but a guideline to allocating your money to achieve your financial goals. Of course, the percentages can vary depending on factors such as where you are based (cost of living) and how much you are earning every month; one can modify this to suit your individualized needs and personal circumstances. “Needs” and “wants” can also be very subjective as well. With that said, having an intuitive number in mind can help you stay on track and evaluate your spending and saving. There are many financial tools and apps out there that can help you calculate the numbers; having a simple rule such as the 50/30/20 is also easily done on an excel spreadsheet. Once you have everything set up, do not hesitate and get started today!

 

 

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The information presented herein is for illustrative purposes only and should not be considered reflective of any particular security, strategy, or investment product. It represents a general assessment of the markets at a specific time and is not a guarantee of future performance results or market movement. Any opinions, projections or forward-looking statements expressed herein or information presented (which includes estimates, graphs, charts, formulae or devices) is subject to change or correction at any time without notice and is not to be relied on as advice. You are advised to conduct your own independent assessment and investigation of the relevance, accuracy, adequacy and reliability of any information contained herein and seek professional advice on them. No warranty is given and no liability is accepted for any loss arising directly or indirectly as a result of you acting on such information.

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Comparing the TER cost for 20 years

Here’s the difference a low cost advantage makes to cost savings

Here's how much you pay

$190,272.13
Selected TER 1.00% p.a.

$99,912.57
LionGlobal All Seasons Fund 0.5% p.a.

By investing a fund with low TER

You may save $90,359.56 over 20 years based on an initial investment of $1,000,000 compared with a TER of 0.5% p.a.

It is enough to provide for a monthly expenditure of $3,000 over the next 2 years and 6 months.

Here's how much you pay

$271,950.61
Selected TER 1.50% p.a.

$99,912.57
LionGlobal All Seasons Fund 0.5% p.a.

By investing a fund with low TER

You may save $172,038.04 over 20 years based on an initial investment of $1,000,000 compared with a TER of 0.5% p.a.

It is enough to provide for a monthly expenditure of $3,000 over the next 4 years and 9 months.

Here's how much you pay

$345,744.19
Selected TER 2.00% p.a.

$99,912.57
LionGlobal All Seasons Fund 0.5% p.a.

By investing a fund with low TER

You may save $ 245,831.62 over 20 years based on an initial investment of $1,000,000 compared with a TER of 0.5% p.a.

It is enough to provide for a monthly expenditure of $3,000 over the next 6 years and 9 months.

TER (Total Expense Ratio) is the sum of various identified operating expenses charged on an ongoing basis to the fund’s assets as a percentage of the fund’s average net asset value calculated over a 12-month period at the close of the annual and semi-annual financial statements of the fund for all the p.a. tabs (1.0%, 1.5%, 2.0%).

The above scenarios are for illustration purpose only. Past performance, as well as any prediction, projection or forecast on the economy, securities market or the economic trends of the markets are not necessarily indicative of the future or likely performance of the funds. Calculations based purely on costs with no market movement or investment returns.