Updated September 26, 2025 by Samantha

Budgeting your salary means dividing income wisely: 20% savings, 10% insurance, 10% investment, and 60% for expenses and commitments. Save first, protect with insurance, grow through investments, and control spending. Starting early builds long-term financial security.

The 20-10-10-60 Rule: A Simple Income Allocation Formula for Smart Financial Planning

Basically, this allocation applies to every individual — it determines how you manage your income: Borrow, Save, Invest, and Protect.

On average, a person’s lifespan ranges between 80 to 85 years. It is strongly advised to cultivate the habit of saving as early as possible. When you start working, allocate 20% of your income to savings — save first, and spend what’s left. This encourages better budgeting and helps you differentiate between wants and needs.

According to the Rule of 72, saving consistently — even small amounts — over the long term can make a big difference. Time is the key factor.

10% — Protect Yourself with Insurance

Allocate 10% of your income to insurance. Start with the basics of LIMA — Life, Illness, Medical, and Accident coverage.

From my experience, many clients rely heavily on company benefits. However, most companies only provide basic medical or hospitalization coverage, and often with limited benefits that employees are unaware of.

The right approach is to get your first personal insurance policy covering all aspects of LIMA, as each provides different protection. Choosing the right sum assured is equally important.

What is insurance? I always tell my clients — insurance is money. It’s the payout from your policy when you or your family need it most. Therefore, having the right sum assured truly matters and should be aligned with your income.

A general guideline for coverage is as follows:

- Life: 10 times of annual income

- Illness (Critical Illness): 5 times of annual income

- Personal Accident: 10 times of annual income

Why align insurance with income? Because in the event of illness, accident, or death, the payout can help your family ease financial burdens and cover ongoing expenses and commitments.

In short, by allocating just 10% of your income as premium, you’re protecting up to 90% of your income. Do you agree?

10% — Invest for Your Future

The next 10% should go towards investment. This depends on your individual risk profile, which can be high, medium, or low.

In my experience, clients who are risk-averse tend to save all their money in the bank instead of investing — mainly because they are unsure where to start or fear losing their principal. However, keeping too much in savings isn’t ideal, because that money doesn’t work for you.

Investing allows your money to grow and beat inflation over time — it’s about making your money earn for you.

60% — Manage Your Commitments and Lifestyle

The remaining 60% of your income should cover your commitments and daily expenses.

What’s the difference between the two?

- Commitments are long-term obligations such as housing loans, car loans, or financial support for parents.

- Expenses refer to lifestyle spending, needs, and wants.

Ideally, both combined should not exceed 60% of your income.

However, I’ve seen many people rush to buy their first property, where the housing installment alone takes up one-third of their income. With the rising cost of living and inflation in Malaysia, this leads to them with limited cash flow and no room for regular savings.

When banks approve housing loans, they often assess eligibility based only on income, without considering your full monthly expenses. As a result, many people end up with no savings and get stuck in a “rat race”, paying off loans for 30–35 years.

Let’s be realistic — if you start working at 25 and retire at 60, that’s 35 years of income tied to debt and bank interest payments.

Therefore, it’s strongly advised to follow this 20-10-10-60 formula to achieve financial balance and long-term stability.

Whether you want to safeguard your family, expand your wealth, or explore new career paths, FTA is here to guide you every step of the way.

FTA Wealth Solutions is a one-stop financial consultancy in Malaysia, offering holistic services from financial planning and nomination to will writing. As an approved HRDF Corp (Human Resource Development Fund) training provider, we also deliver structured financial literacy and professional development programmes. With over 20 years of industry experience and partnerships with leading providers, we help Malaysians protect, grow, and secure their wealth with clarity and confidence.

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