Tips to control spending for people with income of 20 million VND

Experts advise people with an income of 20 million to divide it into groups of savings, enjoyment and necessities, and only spend the amount set for each group.

I earn about 20 million VND per month. But since I started working, I have almost no money left over every month. Every month, I spend nearly 8 million VND on rent; the same amount on food. I rarely shop, but I quite like to sit in coffee shops, go to karaoke, and watch movies with friends.

Now I really want to control my personal spending but I don't know where to start, what criteria to use. Hope the expert can give me advice.

Van Tien

An important step in controlling spending is to identify and divide income into separate groups, corresponding to living needs. Photo: Forbes — An important step in controlling spending is to identify and divide income into separate groups, corresponding to living needs. Photo: *Forbes*

Consultant:

Before getting to controlling spending, I think the most important thing is that you should define a specific, clear, feasible and measurable financial goal. The goal could be to buy the first apartment for 2 billion VND, or to give your parents a 100 million VND trip abroad every year. When you have a specific goal and want to achieve it, managing spending will be simpler and more realistic.

For controlling spending, also known as spending management, there are many effective methods that financial experts recommend such as the "6 jar method", "50-30-20 rule" or "envelope method". Each method has its own advantages, however, most of them require using spending management applications, taking notes or using Excel files to manage spending.

This management will require discipline from the user. Usually, this discipline is only maintained for a few weeks or at most a few months. The main reason why they give up is that it is time-consuming and they do not record everything because they sometimes remember and sometimes forget. In addition, management through applications, notes or excel files will have the purpose of managing and recording past expenses, rather than zoning out future expenses.

Here, I will share a simple, effective method adapted from the 50-30-20 spending management rule. The key point of this method is that you will isolate your monthly expenses, allowing yourself to spend only within the set limit. With the discipline and support tools determined from the beginning, saving will become more effective and easier.

First, we need to determine that income will be divided into three parts . The first is savings and investment. Second, entertainment and enjoyment expenses such as eating out (with costs 20-30% higher than normal eating costs), travel and going out. Third, essential expenses such as rent, market, basic personal shopping, life insurance, and gifts for parents.

Note that determining which expenses are for entertainment and enjoyment and which are essential expenses will depend on each person's lifestyle and lifestyle. For example, you may consider the cost of drinking coffee as essential, a must-have, while another person may consider this expense as entertainment and enjoyment, a want expense rather than a need expense.

After identifying your expenses, the next step is to manage your spending and savings . You need to have two main accounts for spending, an essential spending account and an entertainment spending account.

When you receive your income, the first thing you should do is "pay yourself first", taking out 10-20% of your income into savings. This is the level we recommend for an income of 20 million per month and one dependent. If you have no dependents, this savings level should increase to over 20%, the more the better. Later, if your income increases, the savings rate should also increase with your income.

Then, you will deduct 10% of your income into your entertainment spending account, up to a maximum of 15% of your income. The rest will go to your essential spending account. After deducting fixed expenses, such as rent, living expenses, transportation, and basic shopping, the remaining amount will be for groceries and food.

For example, by the 4th week of the month, your essential account only has 500,000 VND left for grocery money, this will be the grocery money for the last week and you need to wrap it up in this amount. The good thing about this method is that you will not spend more than the predetermined amount.

Every month, you still transfer money into your accounts regularly even if there is still money left in your account. If your essential account still has money at the end of the month, you can use it all, or transfer it to your savings account. This is also considered a reward for yourself in controlling and managing your spending. You can still enjoy life and not worry about whether buying this or that will affect your spending or not.

For the entertainment and enjoyment account, the remaining accumulated money will be the travel fund, shopping fund. You will no longer have to consider whether it is reasonable to stay in a 4-star or 3-star hotel for your upcoming trip, because you already know that the money in this fund is for your upcoming trip.

Let me give you a specific example, assuming you have no dependents and a fixed monthly income of 20 million. Accordingly, you save and invest 4 million VND. Then, the cost of enjoyment and entertainment will be limited to 2 million VND. Finally, the essential cost will be 14 million VND.

It will take time to adapt and change the indicators to suit your lifestyle. This rule can help you spend comfortably within the plan, without having to consider too much before spending.

Nguyen Thi Thuy Chi

Personal Financial Planning Expert

at FIDT Investment Consulting and Asset Management Company

Source link