Often confused about how to manage the right finances? How much money should be spent on meeting daily needs and set aside for saving? In this article, the BFI Finance team provides a formula for setting salary or income that you can use as a reference. By applying this method, it is hoped that your monthly expenses can be controlled and have the potential for a better and safer future. Let's look at the formula for setting the 4-3-2-1 salary below!
The 4-3-2-1 Salary Formula That You Should Try!
1. Allocate 40% for Daily Living Expenses
The formula for setting the first salary is to allocate 40% of your total salary for your main daily needs. The main daily needs include expenses for food, transportation, internet, electricity, shopping for monthly necessities, credit, and so on.
For example, if you have a salary of IDR 7,000,000 per month, then allocate IDR 2,800,000 for your main daily expenses. If it turns out that the allocation is not fully used, you can allocate the rest for savings or as an emergency fund.
2. Allocate 30% for Bills
Having bills or installments is natural, but still subject to certain limitations. The maximum percentage of your monthly bill is attempted not to exceed 30% of your total salary. This calculation is known as the debt service ratio which can later be used by Financial Service Providers in assessing your credit score or eligibility if you apply for refinancing at any time.
Avoiding consumptive behavior is one way to keep your monthly expenses from exceeding a reasonable limit. Also, try to pay bills on time so you don't get fined and have a good credit score.
With the example above, if your monthly salary is IDR 7,000,000, then the maximum amount you can have is IDR 2,100,000.
3. Allocate 20% for Savings, Investments, or Emergency Funds
No one can predict the future, right? So, allocating part of our salary to save is obligatory. Allocate at least 20% of your total monthly salary as savings, emergency funds, or investment purposes.
Savings and emergency funds are two different types of financial instruments. Savings are your savings that can be used at any time to finance more general needs, such as paying for children's education, renovating a house, or for business purposes. Meanwhile, an emergency fund is your savings that can only be used for urgent needs such as to pay for if a family member is sick, finance daily life in case of termination of employment (PHK), and so on.
If you want to invest that's fine, but make sure it fits your risk profile. If you are a novice investor, then you can invest in gold or mutual funds first.
Still the same as the example above, if you have a salary of IDR 7,000,000 per month, the maximum amount of funds that must be allocated for savings is IDR. 1,400,000. If allocating more than 20% is highly recommended, make sure your main daily expenses are met.
4. Allocate 10% to Charity Activities
The remaining 10% of your total salary per month can be allocated for purposes of doing good. Take advantage of your monthly income to donate to the less fortunate, help build places of worship, and take care of your pets as best you can. Providing additional income for parents is also included in this allocation, you know, BFI friends. By allocating income to those who need it more, you will surely get more blessings in life.
That's the formula for setting a 4-3-2-1 salary that you can apply to achieve mature financial planning. 40% for daily needs, 30% for paying bills/installments, 20% for saving purposes, and 10% for doing good activities. Evaluate your current salary allocation. One key word to remember is “wise”. Be wise in using your income for all kinds of needs. This principle is also used so that your life is calm and has bright future prospects.
If you are new to the concept of managing this salary, let's immediately apply it to your daily life!
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