Allocating your income wisely is crucial, especially with the 30/30/40 rule. Consider how you spend your money effectively. If you allocate carefully, you’ll ensure you’re living within your means and not overspending.

Imagine a car salesman questioning whether a car you’re considering is too expensive. They might suggest buying a smaller, cheaper option and saving more for yourself. The same applies to banks when applying for a mortgage. They calculate the maximum you can afford to buy and don’t encourage you to opt for a smaller, more affordable option and save more.

Well, you should take charge of your own story and make financial decisions based on your plan, rather than being swayed by money lenders. After all, they profit from lending to you, and the more they earn, the better.

Before you spend, make sure you have provisions for life-changing events and unexpected expenses. This includes life insurance, pension, medical aid, short-term insurance, and savings. Aim to allocate at least 30% of your income to these provisions.

The total cost of your debt, including credit cards, home and car loans, and personal loans, should not exceed 30% of your income. This ratio helps keep your debt manageable and affordable, even if interest rates increase.

The remaining 40% of your income should be used for living expenses. Since you’ve already set aside savings, you can spend the rest of your income on essentials.

By following this formula, you’ll ensure that you have investments that contribute to your financial independence in the future. Prioritise paying off your debt as quickly as possible, which will free up more money for living or savings. Hopefully, you’ll choose the latter.