Budget Rule
A step for Financial Planning
This is the discipline we should keep to ourselves in response to spending and saving. 50% of our income goes to our needs, 30% goes to wants, and 20% goes to savings.
Why do we need to know this?
- This is inline with identifying our long term goals like Retirement Fund, Life Insurance Coverage, Health Insurance, including Emergency Fund.
Emergency Fund
An emergency fund is a financial safety net for future mishaps and/or unexpected expenses. Emergency funds should typically have three to six months' worth of expenses, although the 2020 economic crisis and lockdown has led some experts to suggest up to one year's worth. (Needs + Wants) * 3 to 6 months.
Retirement Fund
The value of Retirement Fund is considered to be huge because there are many things that affects the prices over the years, one of which is the inflation. A retirement fund is a long-term investment account that allows an individual to save for retirement. By setting aside portions of your current income towards the future, you can take advantage of certain tax benefits. The calculation is based on the standard retirement age of 60 years, and average human lifespan is around age 72 years old. (Emergency Fund * 12months) * years to enjoy
Life Insurance Coverage
Life insurance coverage is multiplied by 10 years as based on studies and statistics to cover for any SADD events; Sickness, Accidents, Disability, and even Death. And up to 88 y/o. (Income * 12) * 10 years
Health Insurance Coverage
Health Insurance is multiplied by 5 years as based on hospital studies and statics to cover the insured against a critical illness. (Income * 12) * 5 years
Click this link to view a sample computation.