Enjoy life and save for the future by splitting income using the '50/15/5 rule'
The Money Show’s Bruce Whitfield asked Warren Ingram, a financial advisor at Galileo Capital, how to divvy up his monthly income so that he can enjoy life, save for the future and not worry about money every month.
Ingram suggests following the “50/15/5 rule”, developed by Fidelity in the USA.
It’s great for those who don’t like to budget every month.
15: Save 15% of your pre-tax salary for retirement
Invest the 15% in a company pension plan or your own retirement annuity (RA).
If you are not saving this amount now; then arrange an annual increase in your savings.
For example, apply to increase your RA contribution by 10% next year.
5: Save 5% of take-home pay for short term savings
You should have an emergency fund that can cover three to six months’ expenses.
Ingram warns that this fund should only be for when disaster strikes, not unplanned expenses that are necessary but not an emergency (e.g. replacing a car tyre, fixing your smartphone screen, extra medical costs, maintenance of your car, etc.)
50: Spend 50% of take-home pay on essential expenses
Housing — mortgage, rent, property tax, utilities (electricity, etc.), homeowners’ insurance, and rates
Food — groceries only; not restaurant meals
Health care — medical aid and out-of-pocket expenses (e.g. prescriptions, co-payments, etc.)
Transportation — commuter fares or car payments, petrol, car insurance, parking, tolls, maintenance
Childcare — day care, education
Debt payments and other obligations — credit card payments, student loan payments, child support and life insurance
The rest of your total income can go towards entertainment, clothes, luxuries, holidays, etc.
Want to retire before you’re 65?
Saving and investing 15% of your pre-tax salary for 40 years should allow you to retire when you’re 65 years old.
If that’s too old for you; you’ll need to cut from “the rest” to increase your retirement savings.
For more detail, listen to the interview in the audio below.
Get the 10 most-read articles of the week from Bruce Whitfield’s The Money Show, emailed to you every Friday morning:
Can you afford to leave South Africa? Certified Financial Planner (CFP) Barry O'Mahony on what to consider before deciding.Read More
Edgar Mafoko (Portfolio Manager at FNB Wealth and Investments) shares his stock picks of the week on The Money Show.Read More
Devin Shutte (Head of Investments at The Robert Group) shares his stock picks of the week with Bruce Whitfield on The Money Show.Read More
Personal finance expert Warren Ingram (Galileo Capital) on how to raise financially free children.Read More
Bruce Whitfield interviews senior Karatbars representatives, a financial advisor and someone who was invited to its conference.Read More
Nadir Thokan (Co-Chief Investment Officer at 27Four) shares his stock picks of the week with Bruce Whitfield on The Money Show.Read More
Kruger International Asset & Wealth Management Director Mia Kruger shares her stock picks of the week on The Money Show.Read More
Most personal finance advisors suggest reducing “risk” a year or two before retirement. Ignore them, reckons Warren Ingram.Read More
After a "calamitous” mini-budget, Austen Morris Associates does not see a single reason to invest any discretionary funds in SA.Read More
Rowan Williams shares his stock picks of the week with Bruce Whitfield on The Money Show.Read More