Types of household budgets | AIA (2024)

Financial hardships during the pandemic were a reality for many people worldwide, but those with a household budget were better able to weather the storm.

A survey published by the Organisation for Economic Co-operation and Development in 2021 asked participants how long they could cover their living expenses without borrowing if they lost their primary income. The respondents came from Thailand, Hong Kong, Malaysia, Indonesia and South Korea.

Most respondents could not provide a definite answer, and those who did fear their savings couldn't cover a week's living expenses. The only ones who could reply with financial confidence were participants from Hong Kong. About 55 per cent responded they could cope with six months of living expenses, which is the rule of thumb when it comes to an emergency fund.

The savings habit of the Hong Kong respondents requires a financial discipline that can be tough to sustain. However, it can be done with a household budget plan that reflects your financial situation, lifestyle, personality and goals. Here are five types of budgets to choose from.

The numbers represent how to divide your income after taxes.

Good to know: 50/30/20 can be a financial confidence booster since it allocates money to indulgences like entertainment or shopping.

Categorise expenses and savings and put money allocated for each one in an envelope or jar.

Ideal budget method for: people who overspend and want to restrict credit card usage. Those not comfortable using digital tools may prefer to monitor spending this way instead of crunching numbers on a spreadsheet.

Good to know: determine how many bills you need in each denomination before withdrawing the cash, advises Todd Christensen, an accredited financial counsellor who provides debt relief education on MoneyFit. He warns about "the denomination effect", where people tend to spend more when cash is in small denominations.

Personal finance coach Dave Ramsey puts zero-sum budget this way: income minus expenses equals zero. If there is still money after the expenses are paid, put the extra cash in an emergency fund, pay off debt or invest in savings insurance. A negative result means cutting costs or finding extra income to cover the difference.

Ideal budget method for: people who find categorising every expense in a bucket like the 50/30/20 method a challenge.

Good to know: Financial experts say zero-sum allows room for error, so people can adjust if there is an unexpected financial setback without giving up on saving.

Savings and investments occupy the same financial priority level as fixed expenses like utility bills. Money goes to them first before spending on wants.

Ideal budget method for: people who feel they are living from paycheque to paycheque, find it hard to save or they have to make up for time not spent on saving or investing.

Good to know: reverse budgeting helps curtail expensive spending habits. After putting money towards savings or retirement income, you can spend any extra cash without the guilt.

5. Kakeibo method

This Japanese saving method involves writing down your income, expenses and financial and life goals in a journal. Kakeibo translates as "household finance ledger".

Ideal budget method for: people who buy items on impulse and are looking to make incremental changes to their money management habits.Users are encouraged to write reflections to instil mindful spending and savings habits. It's the Marie Kondo of household budget methods, except the "does it spark joy" comes after "can you afford to buy it" and "will you actually use it".

Good to know: Amazon customer reviews on one popular kakeibo journal talk about how writing things down makes them feel accountable. As one reviewer puts it, kakeibo "prevents excess and helps prioritise not only how to spend money but where to spend your time."

Planning financial wellness is time-consuming, but it gets easier when you have a realistic plan about how much you earn and spend. A budget is an honest look at your financial situation and empowers you to think and act for the future.

Equip yourself with the financial skills to achieve the future you want. Finance expert Lachlan Campbell shares his advice on planning for life's significant moments in this episode of AIA Voices.

AIA Voices is a community of influential and educational voices from around Asia to talk about life, health and wellness. A platform to educate, motivate and inspire people to make positive behavioural changes on their health and wellness journey. Providing an opportunity for communities across Asia to connect, collaborate, and learn from each other. Designed to drive AIA One Billion, our ambition to engage a billion people to live Healthier, Longer, Better Lives by 2030.

Disclaimer:

This is general information only and is not intended as financial, medical, health, nutritional or other advice. You should obtain professional advice from a financial adviser, or medical or health practitioner in relation to your own personal circ*mstances.