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Scrapped. Yup, this year, there’s not going to be any 2007 tediously- written- long- listing- time- consuming- discipline- thirsting expenses recording system which I have setup for the past few years. This year, I will be using percentage allocation system instead. Don’t worry, it’s not as complicated as it sounds, in fact, it’s really very simple.

The Percentage Allocation System
I am going to explain in detail why it’s effective and why you might want to give this a try.

Let’s start with your intention of keeping track of your incoming ringgit and outgoing ringgit. What’s the whole idea of keeping track of it? Yeah, close your eyes for a few seconds and ask yourself deep down inside.

If your answer is to ensure that you do not overspend and hoping that you will be able to save a portion of that money to work for you (either as an emergency fund or for the sheer purpose of seeing it accumulate), then this might just be the system meant for you.

Okie, so what do you normally do when your January paycheck arrives into your savings account? If you are going to just leave it there and hope that at the end of the month, you will have some savings to bring forward to the next month, then I can assure you that it’s very likely not going to happen.

So what are you going to do to prevent the account from drying up?

Here are a few possibilities you can choose from (sounds like playing an RPG game?). The following procedures must be executed, if possible, automatically, once the paycheck is in the account.

a) if you will be needing the money in case of a sudden emergency
Channel X% of the money using autodebit/standing instruction to a bank that you do not have an ATM card, with the least branches around and the one that will give you the most trouble accessing to, for e.g. Bank of China (so far, I’ve only known of one branch in Jln Ampang). Prefrably a fixed deposit account.

b) you already have about 3 months worth of monthly salary to buffer for any emergencies in a saving account and might be needing the cashflow in the next 5-6 months
Setup a conservative mutual fund account where the objective of the fund is capital-guaranteed or with emphasis on capital preservation, I suggest that either a fixed income fund or a dividend fund. Transfer X% of your total paycheck to this mutual fund account. Make sure you also apply for the autodebit facility, where the money will be deducted on a monthly basis.

c) if your emergency fund is about 6 months worth of monthly salary and you do not foresee any cashflow problem in the next 1-2 years
Setup a moderately aggressive to aggresive mutual fund account. Transfer X% of your total paycheck to this mutual fund account. Also, setup an autodebit facility to automate the transaction from your “paycheck account” to this mutual fund account.

d) you prefer a no-risk saving scheme, where your contribution is very limited and you are pretty sure you will not withdraw it
Setup a 21-30 years endowment or annuity account where you can contribute to it on a monthly basis. Decide on X% of your monthly salary. Make sure you also use an autodebit facility.

Well, there could be other scenarios worth exploring. You can even open a CDS account and buy some blue chips stocks, but let’s try to keep things simple for now. The basic idea is to put your money where it will give you the best interest rate base on your cashflow liquidity.

I shall explain in detail what X% stands for in the next post.

Articles in this series:

Part 1: My Personal 2007 Budget and Expenditure System
Part 2: The Magical X
Part 3: Automated Savings Chart
Part 4: The Better Way to Save

• The Better Way to Save
• Automated Savings Chart
• The Magical X
• Questions on Budget 2007?
• How to Save a Little Fortune
• K&N Kenanga Budget 2007 Preview
• Malaysia's Personal Finance Articles
• Budget 2007 to Introduce Car Scrapping Policy?