The Magical X

If you’ve noticed something from the procedures I stated above. I did not mention anything about how much money you should put in the account type you have chosen. Here’s the tricky part, and one of the most important part that only you can and must decide yourself.

The X% stands for an amount ranging from 1% or more, where 1% would mean that you are saving only 1% for your salary. Of course, the more the better, but for this system to work, you must specify this X amount and must be able to hang on to it like your own life depended on it. To know what is the value of X, you must first calculate how much you are now spending on an average month (I don’t have to go through this with you, you should know better). If you are can’t be bothered to even calculate your own fixed monthly expenses, then you can’t be serious about managing your own finance. Just like a company that doesn’t keep track of its own business account, there’s no way you can know if it’s making any profits.

Okie, let’s say you already have the monthly fixed expenses figure. Substract that amount from your monthly salary. For instance,

Your monthly salary figure is RM 3000.00
Your fixed expenses figure is RM 2763.35

Total remaining: RM 236.65. This figure should be positive, if not, you’ll have to work on that first :-)

That’s 7.88% of extra ringgit. To be safe, we will lower it down to 5%, since your expenses figure might vary from month to month, but it shouldn’t vary by too much.

Now, the X for you will be, from the example above- 5%.

You will now ensure that 5% of your monthly paycheck goes into one of the “Treasure Chest” of your choice before you even withdraw a single sen from your paycheck. This is a very important procedure that must not be violated at ALL cost. Consider this the rule of the game, if you break it, you lost. So it’s best you leave this job to the machine (autodebit/standing instructions/GIRO) since we human are creature of emotions. The more mega sales around, the more emotional we get.

Once you started off the 5% allocation, consider this as the lowest denominator of your allocation. Hence, the only way is up. So, you should really consider very carefully if you can afford to part with the 5%. Even 1% is okie, as long as it’s positive and you can stick to it.

Here comes the next part of the system. You have to increaes the percentage of your allocation as new situation arises- for example, whenever there’s an increment of your paycheck or you are getting an alternative stream of stable income which you don’t need anyway. Your expenses might increase alongside too, but as long as you have more money remaining at the end of every month, you must revise the percentage up a few notch.

The higher percentage you can allocate, the faster you will see the magic of this system. I shall show post up a simulated example of how the magic is derived 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

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