Managing your monthly salary well is one way you can achieve financial freedom in the future. According to the Financial Services Authority (OJK), one of the recommended methods for managing monthly expenses is the 40-30-20-10 formula.
This formula is a budgeting method that divides monthly income into four main posts with certain percentages. How to apply the 40-30-20-10 formula? Come on, keep watching this article!
The 40-30-20-10 principle is a simple method for managing personal finances based on income allocation percentages. Here’s the explanation:
40% for Daily Needs
Allocate 40% of your salary for living needs/primary needs such as food, transportation, monthly bills (electricity, water, subscription and entertainment). These needs must be prioritized and receive a larger portion so that basic needs are met without sacrificing other aspects and preventing excessive spending at the end of the month.
30% for installment or debt needs
Short-term/long-term debt must be paid immediately after receiving salary. That way, your finances are not burdened at the end of the month. Try to keep debt no more than 30% of monthly income. So, don’t have new debts before the old debts are paid off
20% for Savings, Emergency Funds, Insurance and Investments
Please set aside 20% of your monthly salary for savings, saved as an emergency fund, health insurance/life insurance, and for long-term goals (investment). There are several investment instruments that you can choose. If you want low risk, you can choose money market mutual funds or buy gold.
10% for Social Funds or Donations
Part of your income can be used for social purposes such as zakat, alms or donations. Of course, your help can contribute to people’s lives and the economy. Use 10% of your monthly income for this post.
The 40-30-20-10 financial formula will be easy to implement if you can commit to managing cash flow. Along the way, these components can be modified according to the financial goals that have been created. If you get used to doing it, your financial management will be more focused and will enable you to achieve financial freedom in the future.