Simplify Your Life

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Personal financial management

Published by

Arun Muraleedharan

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Ever wondered how much you should save, spend and invest each month once you start your career? Read on to understand some simple principles for personal financial bliss.

Who this post is meant for

  1. For people who prefer to spend their time on family and career and not on financials 
  2. Regular income earners. Folks with highly variable income eg. Entrepreneurs can’t apply these simple ratios
  3. Those with monthly income > monthly expenses
  4. Not a credit revolver

Understanding some terminologies

  1. Expenses = Refers to monthly recurring expenses eg. Groceries, CC spend, Loans, Taxes, Childcare, Utilities, Insurance etc. If any of the expenses are annual recurring, consider their monthly equivalent.
  2. Savings = Used for one off short term needs like travel or unexpected non-recurring expenses
  3. Investments = Used for big asset purchases like house/car or long term needs like Retirement, Children’s education. Part of Govt mandated savings can be considered investing if its only used for long term needs (eg. CPF OA, SA)

Simplify your personal financials by using the below rules

  1. Monthly income = 50% expenses + 20% savings + 30% investments (min.)
  2. Recurring Investments = 30% stock + 70% Index fund (min.) (inc. Govt mandated savings like CPF)

Some notes to note

Key notes for investments:

  1. For stocks, only invest in growth stock in companies with strong fundamentals that you believe in
  2. Keep track of Investment performance by comparing TWR (Time weighted return) of your investments vs that of stock market index (eg. S&P 500) over the overall investment period and for the year. More about how to do this in another blog coming up.

Key notes for expenses:

  1. Loan expense should only be max. 20% of monthly income
  2. Insurance expense should only be max 5% of monthly income

Other notes:

  1. Review your financials once every year to assess the ratios and Investment performance
  2. For any bonus received over the monthly income, follows ratio of 50% savings + 50% investment or loan principle re-payment (min.). 

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