I graduated from university not long ago (well, five years ago) and felt that managing money was a daunting task – even more daunting than counting calories when I embarked on my fitness journey 10 years ago. 

As a young working adult in Singapore, it took me two years to start tracking my expenses. Did I work all for nought? Not exactly, but I was left with a little more than breadcrumbs. Picking up the 50-30-20 rule helped me to balance my spending, save for the future and most importantly: put a retirement goal in sight.

Whether you're just starting out or looking to refine your financial habits, this guide will break down the 50-30-20 rule, highlight common financial pitfalls, and provide tips on how to make this rule work for you. Let's dive in!

Breaking down the 50-30-20 rule

The 50-30-20 rule is a straightforward budgeting system that helps you allocate your income into three key categories: needs, wants and savings.

Imagine this: after your CPF contributions and self-help group contributions are deducted from your salary, you're left with your take-home pay. (By the way, if you’ve just started working and are new to the CPF system, read more about navigating CPF here.)

Now, let’s divide that into three simple buckets. The first 50% is reserved for your needs — those essential expenses you simply can’t live without. This might include your three meals at the hawker centre, daily MRT rides, mobile phone plan, and that all-important insurance policy. These are the things that keep you going, and they deserve top priority in your budget.

Next, 30% of your income goes towards your wants. This is where the fun happens — your late-nights out, travel adventures, online shopping and even in-game cosmetics all come under this category. While it’s tempting to splurge here, sticking to the 30% limit helps keep your spending in check while you enjoy life.

Finally, the remaining 20% is earmarked for savings and investments. This might not sound as exciting as splurging on a new outfit or a weekend getaway, but it’s the key to financial security. This portion of your budget is where you build your emergency fund and save for the future.

Saving your money with the Singlife Account is a great place to start making your money work harder for you. You can easily earn 3% per annum on your first S$10,000 with no fees and no lock-in periods!

Why young adults struggle with money: common pitfalls and how to avoid them

Let’s face it — struggling with budgeting is common, especially in a city like Singapore where the cost of living is high. But understanding why this happens can help you avoid the most common money pitfalls.

• Student loans

For many, the financial struggle begins with student loans. Graduating with debt makes it tough to save early on, especially when starting salaries often feel inadequate.

• Lifestyle inflation

On top of that, as you start earning more, lifestyle inflation can kick in — the temptation to upgrade your lifestyle with better meals, nicer clothes, and more expensive hobbies becomes hard to resist.

Unfortunately, this can lead to overspending on wants (i.e. more than 30% of your income) while neglecting savings (i.e. saving less than 20% of your income). When you prioritise spending over saving, you risk falling behind on your financial goals.

• Allure of credit card spending

Worse, the allure of credit card spending can quickly turn into a financial nightmare if not managed carefully. High-interest debt can snowball, making it harder to break free and creating a vicious cycle of debt.

One way to avoid these traps is by clearly distinguishing between wants and needs. For example, while public transport is a necessity if you need to go somewhere, taking a taxi might be more of a luxury. Categorising your expenses can help you make prudent spending decisions and avoid falling into debt.

How to make the 50-30-20 rule work for you

Now that you understand the basics, it’s time to make the 50-30-20 rule work for your unique situation.

• Track your expenses

Start by tracking your expenses using a budgeting app or a simple Excel or Google Sheets document. Check out some of the best budgeting apps recommended by MoneySmart. I used one of these apps and it’s been a game-changer – giving me a clear picture of where my money was going, how closely I was sticking to the 50-30-20 rule, and recurring expenses I’d meant to cancel but forgot to.

• Make tweaks as your life evolves

Life events such as getting married, buying a home or receiving a pay raise might require you to tweak your budget. Speaking of new homes, here’s 5 ways to create your dream home on a budget. The beauty of the 50-30-20 rule is its flexibility. You can adjust the ratios to fit your changing circumstances without losing control of your finances.

• Go one step beyond budgeting

Once you’ve got the hang of budgeting, consider making your money work harder for you by investing.If you’re looking for investments with an insurance component, you might want to look into plans like Singlife Savvy Invest II, which even offers you a Welcome Bonus¹ of up to 60% of your basic regular premium!

The bottom line

Remember, the 50-30-20 rule is a guide, not a strict mandate. You make the rules for your money. What’s important is to be accountable to your budget, and don’t be too hard on yourself if you occasionally slip up. The goal is to create sustainable habits that keep you financially healthy in the long run.

^Notes

^{1. Welcome Bonus is payable upon receipt of each basic regular premium paid for the first policy year, in the form of additional units. It will not be payable for any single premium top-up and any unpaid basic regular premiums due during the first 12 months of the policy. Please refer to the Product Summary for more details on the Welcome Bonus. This includes the formula of the Welcome Bonus as well as the applicable Welcome Bonus rates for the different MIP and the different basic regular premium band.}

^{Singlife Savvy Invest II is underwritten by Singapore Life Ltd.}

^{As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid. Investments in this plan are subject to investment risks including the possible loss of the principal amount invested. The value of the units, and the income accruing to the units, may rise or fall. Past performance of the ILP sub-fund(s) is not necessarily indicative of future performance.}
 

^{Information is accurate as at 14 Feb 2025.}

^{This advertisement has not been reviewed by the Monetary Authority of Singapore.}

^{Protected up to specified limits by SDIC.}