Here’s how I implemented the 50/30/20 rule to save for a 12K motorbike at the age of 19.

What is the 50/30/20 Rule?

A budgeting rule is simply a framework that allocates your income to various categories of expenses. To me, I look at it as a financial guideline that helps me to segment my expenditures and keeps me in check by making sure that I am responsible and disciplined enough to track my spending.

The 50/30/20 Rule suggests dividing your after-tax income into three categories, with 50% for needs, 30% for wants, and 20% for savings and debt repayment.

Source: the balance

What exactly classifies as Needs, Wants, and Savings?

Needs: It simply refers to costs that are required to meet your fundamental requirements for the necessities of life. Rent or mortgage payments, utilities, groceries, car expenses, insurance, and other necessary bills are usually included in this category.

Wants: It is your non-essential purchases and experiences that improve your quality of life. Things like eating out, entertainment, pastimes, travel, and other indulgences for oneself can fall under this category.

Savings and Debt Repayment: This category comprises funding emergency funds, setting aside money for future objectives, funding retirement accounts, and making extra payments on high-interest debt, such as credit card balances.

How I used the 50/30/20 rule to save for my motorbike as a student

To put things in perspective, I had to work part-time to support myself because I was no longer receiving an allowance when I enrolled in Polytechnic. At the age of 18, I began working at Starbucks and did freelance work for an event company. I often aim to earn less than $500 per month to avoid having Starbucks deduct CPF, and I typically make between $200 and $300 from my events job. My monthly income is approximately $800, and occasionally I may earn up to $1,200 during the school breaks as I have more time to work as a freelancer.

In general, this is how I split my $800 / $1200 to save :

I named the three categories "Bobian Account" for my needs, "YOLO Account" for my wants, and "Emergency" for my savings and debt repayment, as you can see in the image above.

It met my needs as a student in a fairly simple way. It covers the expense of my transport as well as the meals I need for school every day.

As you can see in the image, I divided the 30% for my wants into 10% and 20%. The remaining 10% is set aside for extra spending on nights out with friends, and the final 20% is strictly savings for my motorbike.

There were no grand plans for my savings, such as "retirement" or "house." It was only for my emergency savings.

My ability to manage my funds has significantly improved since I started using this budgeting rule. Although I was unable to save $12,000, I was able to save roughly $4,000 over a year and a half, which I utilized to pay for the bike's down payment. I made that decision because COE (which was roughly $3,000 at the time) was increasing. Looking back, I'm glad I did, especially in light of the COE situation as it stands now.

A step-by-step guide to what to do with your income

As I became older, I established three principles that I live by that are non-negotiable.

1. Savings First.

As soon as payday arrives, always take a portion of your salary and put it into the savings account. In contrast to "letting my spending dictate my savings," the goal of this approach is to create the habit of "letting my savings dictate my spending." This helps me acquire the discipline I need to boost my savings as a result.

2: Always Invest.

This is divided into two sections: First, invest for the future; second, invest in oneself.

Invest for the future

I believe that everyone knows the worth and significance of investing in this day and age. We have access to a wide range of investment tools and platforms, such as index funds, bonds, mutual funds, and more. To get help managing their finances, some people may even like talking to a financial advisor or using robo-investors. There are a tonne of possibilities out there, but always be sure to do your due diligence.

Invest in oneself.

Purchase books, go to seminars or courses, or do anything else that adds value. Never stop improving; broaden your knowledge and develop your skill sets. You might wonder, "What is the biggest room in this world?" "Room for improvement" will be my response to it. I've always believed that our income is determined by the value we deliver. Our ability to deliver the appropriate value depends on our skill set, which is simply another word for "applied knowledge," meaning that knowledge is a prerequisite for having the necessary skill sets. Investing in oneself is crucial for this reason.

3: Choose what's most beneficial to you.

Choose the Budgeting Rule that best fits your present lifestyle out of all of them, and make sure you are comfortable with it.

Everybody is currently experiencing life at a different stage. A portion of us may still be in school, while others have recently begun employment or are about to tie the knot. Choose the most effective Budgeting Rule that suits your needs. Make it uniquely yours. For those of you who are saving for a wedding, consider designating a specific proportion for the occasion. As you can see from my example, I personalized my 50/30/20 rule to achieve my own goal of purchasing my motorbike. This leads to the point of being comfortable. In whichever way you choose to categorize your income, the ultimate goal is to ensure that you don't put yourself in financial hardship.

I wanted to share with you what has been incredibly effective for me over the past five years, so I created this opinion post. There is no hard and fast rule on which Budgeting Rule is the best to follow. Different strokes for different folks. Some may agree and some may not.

If I may impart one lesson from this, it is to be disciplined. Even if you have the best Financial Advisor managing your accounts or have discovered the ideal Budgeting Rule, nothing will work if you lack discipline.