tools for financial rule


Financial Rule is a good starting point for getting your finances on track.


Plus, understanding the rules, helps you to make quick money calculations or decisions at your fingertips.


So, herein I share;

6 Financial Rules Every Person Should Know

#1: 1% House Maintenance Rule

If you own a house, you should put aside 1% of your house’s price for the house’s maintenance and repairs expenses every year. 


For example, if the cost of your house is $ 500k, you should allocate $5,000 every year for house maintenance.


Having regular house maintenance will prevent costly major repairs. Among them are:

·      Aircond services and maintenance

·      Inspect plumbing for leaks at bathrooms and sinks

·      Check for electrical wiring

·      Paint the house


If you don’t spend the money, keep it there for future upgrades and improvement.


#2: 4% Inflation Rule

Inflation is average at 4% annually. 

The price of bread, milk, coffee, groceries tends to rise over time. Ie. if this year’s price of bread is $2.50, the next 5 years it might cost $3.00 or more. 


To beat inflation, your savings should get a better return than 4% inflation rate. Hence, it is wise to save money at an institution that can provide yearly returns of more than 5-6%.

#3: 10% Buying Car Rule


It does not matter whether the car is new or second hand, the rule states that you should not spend more than 10% of your income on the car’s monthly installment.


Buying too much cars also one of financial mistakes that someone can make. Besides purchase of the cars, you have to pay for car insurance, maintenance, need bigger parking etc.



#4: 30% Home Buying Rule

30% Rule is a popular rule related to home affordability.

It means that you should not pay more than 30% of your monthly income for your house’s monthly installment. 


For example, if you’re earning a net $5,000 monthly (after PCB tax and EPF deduction), you should not spend more than $1,500 on house monthly rental or house monthly installment.

#5: 80/20 Budget Rule

80/20 is the rule of thumb for budgeting.


You should put 20% of your monthly income into savings, ie emergency and long-term needs.


The remaining 80% goes towards expenses. Ideally, the 80% expenses are broken down as below;


60% – necessities such as bank’s loan, utilities, food, transport, etc

10% – lifestyles; ie. family outings, new clothes, good dining

10% – personal growth and charity

#6: 70% Retirement Income Rule

Experts recommend a good Replacement Income Ratio is at 70%.

This is a rule of thumb for you to estimate the income you need for a comfortable retirement.


For example, If you at the point retire earn $10,000 monthly, you need about 70% of that to maintain a good lifestyle during retirement. 


In another word, you need about RM7,000 a month during retirement.

The income can be from the dividends of your savings, rental from property investments, stocks, digital income etc.


Related: PRS – Everything You Want To Know About Private Retirement Scheme.

Here is some other useful personal finance guideline:

         1. Income is not the same as savings. 

Having a high income does not automatically make you rich; having a low income does not automatically make you poor. What’s the matter is how much of your income you set aside, not how much you spend.



2.   Never touch your retirement savings, except when you retire.



3.   Buy a home that costs no more than 3 times your annual income. This is a good way to limit your spending on your home and keeping things within an affordable range.



4.   Steps to savings. 

a.   Save for emergency first.

b.   Start paying your debts.

c.    Save for retirement.

d.   Begin other investments such as property, gold, etc.



5.   Prioritize savings for your retirement before saving for your kid’s college. They can have many funding options. You hardly get bank loan for retirement.



6.   Learn to give.

“Tangan yang memberi lebih baik dari yang menerima”

Generosity without  expecting any returns will completely change you.


7.   Increase your income is a good habit. 

Learn how to improve your skills, earn higher pay or how to get a better job.



8.   The best way to save more money over time is to increase your savings rate every time you get a raise.



9.   Don’t use debt to pay the debt. Refinance or debt consolidation is only reshuffled your existing debts. Plus, you will incur additional fees of about 10-12% of your total loans (ie. Legal fees, MRTA, valuation fees, etc).


Instead, choose to clear the debts



10.   Automate everything. The best way to save more, avoid late fees, and make your life easier is to automate as much of your financial life as possible. 


Final Thought

These financial rules and guidelines can be a useful tool as a first step to getting your financial in order. So, which one is your favourite ?

About the Author

Khairul, is a Certified Consultant registered with Principal, founder of Khairul Abu Bakar blog site and the LinkedIn Spotlight 2019.

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