I’ve heard of the 50/30/20 rule for monthly salary allocation. Is there a similar rule for net assets? As in, how much of my total net worth should be in investment, insurance, cash and etc? - Seedly
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Anonymous

Asked on 15 Apr 2020

I’ve heard of the 50/30/20 rule for monthly salary allocation. Is there a similar rule for net assets? As in, how much of my total net worth should be in investment, insurance, cash and etc?

What's a good breakdown to have?

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Hi anon,

I'd say to invest at least 20% of your salary. More if you can help it. Also, try diversifying beyond robo advisors. You will need other asset classes in your portfolio as well.

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Hi Kuncoro,

In terms of priority, definitely look at insurance first, get your medical and personal accident covered first, after that look into a whole life policy.

An overall guideline for insurance is that it should only take up 10-20% of your income.

In terms of savings, the saying goes that if you are saving 20% of your income, you are planning for retirement, 30% of your income, then you are looking at getting financial freedom once you have retired, so maybe just something to think about

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Yong Kah Hwee
Yong Kah Hwee
Level 8. Wizard
Answered on 30 Dec 2019

I would say that insurance should be prioritised first. Without insurance, you'll need to fork up a sum of money for any medical emergencies, which may potentially eat into your savings and investments. You should also have 6-12 months of monthly expenses saved up first before looking into investments!

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Jonathan Chia Guangrong
Jonathan Chia Guangrong, Fund Manager at JCG Fund
Level 8. Wizard
Answered on 29 Dec 2019

Get insurance protection and medical in place first, followed by about 6 months' worth of expenses in savings before you start investing.

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You can calculate the guidelines here using a calculator I made:

https://www.aaronleow.com/life-budget-calculator - For Life Budgeting

https://www.aaronleow.com/insurance-requirements-calculator - For Insurance Budgeting and Requirement Guidelines

The above should be taken as a guideline, but engaging a financial adviser will be helpful.​​​

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Firstly, we need to have a complete understanding on our cashflow. Through this process, we will understand our earning ability and spending habit.

Here is a Guide:

Understanding Your Personal Cash Flow

Generally, the guideline will be to have 3 to 6 months of total expenditure as rainy day funds (Part 4.1). At the same time, save and invest 20% to 30% of your annual income.

The allocation on savings and investment will vary according to factors, e.g. risk appetite, short-term goals.

As always, the more money you are able to set aside today, the more you can grow for your future.

I share quality content on estate planning and financial planning here.

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Colin Lim
Colin Lim, Financial Services Consultant at Colin Lim
Level 7. Grand Master
Answered on 16 Apr 2020

I have never use this rule. I use discipline and good habit. I list down my expenses, depending on the remaining income which will be my savings. I split this portion of saving into investment and rest going into emergency fund.

Net worth= Assets - liabilities.

There are no rules for networth. And you should focus too much on Networth. Do your best, everything is by the way.

#planwithcolin

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Yang Teng
Yang Teng
Level 9. God of Wisdom
Updated on 16 Apr 2020

For insurance, a rough guide for life is 10x of annual income and 5x for critical illness. Traditional portfolio allocation of just stocks and bonds is 100-age (percentage in stocks). Cash wise, about 6 months' worth of emergency funds or more if you forsee upcoming expenditure.

These are just starting point and a very generalised allocation. They should be taken with a pinch of salt and not a fixed format for everyone. Every individual has different needs and so insurance coverage will be different and portfolio allocation will also be vary depending on what they want to invest in/risk appetite.​​​

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Kenny Ng
Kenny Ng
Level 4. Prodigy
Answered on 01 Jan 2020

You can do all 3 concurrently, just factor in that insurance is bracket by age , reason being studies have shown that the younger you are, the less likely you are to suffer from health, so for insurance that are dependent on age like CI, get them first if you can afford it.

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Tai Zhi
Tai Zhi, Chief Investment Officer at Autowealth
Level 6. Master
Answered on 04 Mar 2019

This really depends on the personal financial circumstances, which significantly differs from person to person. Consider two persons, both having a basic monthly salary of S$3,000. What if one of them comes from a well-to-do family background which offers a safety net? What if one of them is working for a company/industry which is gloomy and may cause him/her to be retrenched in the near future? What if one of them have a six-figure bank savings already?

Therefore, pls allow me to just share generically what is the common trend we see for investments after advising thousands & thousands of clients and managing their investments.

Most would invest their available capital after setting aside some rainy day funds. Most would also commit to a monthly/quarterly regular investment plan. The majority of these investors commit around 10% of their monthly salary. Affluent and accredited clients, whose monthly salary is above S$5,000 and S$25,000 respectively, tend to invest almost 20% of their monthly salary.

For insurance, you may wish to consider other perspectives as they may have better knowledge and experience than I do.

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Everyone have different situation in life so its hard to give a definite answer. Usually people set aside 2%-5% into insurance which can be more if you have to buy more coverage for whatever reason. A good insurance agent will make sure you dont overbuy and have adequate coverage. For savings and insurance, the more you allocate, the more it will benefit you. Dont limit yourself to a percentage instead for higher the better.

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