Way back in January 2015, I was reading Kapitalust’s latest blog post ‘Advice from Li Ka-Shing: One of the Richest Men in the World’. Now, you may think: ‘so what?’ and yes, so what, I was reading a blog post, whoop-de-do. But this is not just any old blog post, and not just any old blog post about personal finance, FIRE, or living frugally. The post quotes (although Steve can’t really remember where he originally got it from) Li’s advice on how to divide your salary i.e. how much to spend on various outgoings. I found this fascinating, and immediately printed off a copy.
Is this advice the answer to all your money questions?
Over the several months that followed, I often thought about the advice and the divisions. It seemed to answer so many questions, or at least be a pretty decent guide towards questions such as:
- how to divide my paycheque
- how to divide my salary
- how much to spend on food
- how much to save for a mortgage
- how much to save for college or further training
- how much to save for a child’s university fees
- how much to save for a pension
Now, I know for many people, only living off 30% of your net income would be almost impossible – especially in high cost of living areas, but I think Li was aiming this advice at the young e.g. the 16, 18, or 21 yr old – something like that. You might still be living at home and working your first job, or you just came home from 3 years’ at uni and need to get yourself a bit more sorted financially before moving to your own place. In this case, living off 30% of your income is a lot more doable, I’ll grant you that!
How should I divide my income? There are several ways!
This is obviously just one of many ways to plan how to divide your income into various priorities. In the past, I have done:
- the 80-10-10 rule:
- live off 80%
- save 10%
- donate 10%
- the Biblical rules on the ‘whole tithe’
- 2.5% to your spiritual leader
- 10% to your church or long-term provision fund
- another 10% split three ways
- to the poor
- to inheritance for your kids and grandkids
- to a holidays and festivals fund
- Donate up to 10% whenever you felt someone/some cause warranted it, do what you want with the rest of your money (this was not very successful)
- no rules (this one didn’t work at all, LOL, but see Weenie’s comment here on the Fibrarian’s August 2015 budget post – the ‘Anti-budget’)
So basically, as you can see, I like to play around with how to apportion my money. But Li Ka-Shing’s advice just kept coming back to me for some reason. I think I really like the different foci of the 5 ‘funds’ of money. It seemed pretty logical on the whole, and I really liked the idea of being able to take people out to lunch – that’s a legitimate excuse to spend money on eating out!
How we tried to implement Li Ka-Shing’s money plan
I decided to see if we could follow Li’s advice, but soon realised that I would have to make several tweaks. Here is Li’s original apportionment:
- 30% on living expenses (he only specifically refers to food though);
- 20% on relationship building;
- 15% on education (up to 5% on books, the rest saved for courses);
- 10% on holidays;
- 25% on savings/investments.
Now, the first thing I thought was: ‘there’s nothing going to charity’ (although Li did advocate buying some gifts for your loved ones). We currently give over 5% of our net income to charity, because quite frankly, there are people out there who are desperate and need help that just can’t be obtained from the job centre, the NHS, or the local council. So we have always tried to support charities. There is always someone who is in a bad way, and I can only say that I am grateful for the things we have, the personal relationships, and the opportunities we engage in every day, so why shouldn’t I share those blessings with other people who do not have them yet? Not much excuse is there. Plus, when you’ve been in poverty yourself, or close to it, you can’t help but want to help others anyway – even if it’s only with your time or skills, rather than money.
The second thing I thought when looking through these portions was: ‘we’ve both got advanced degrees from elite universities, and we can borrow books for free from the library, so the education budget can get slashed’. Okay, we can always do professional courses to enhance our careers even more, but they typically don’t cost anywhere near the latest prices for an undergraduate degree. We are saving money for a our little lad, but we are not going to force him to go to uni – he might want to use the money for starting his own business, or for a house deposit, or anything else.
Changes we made to Li’s plan
And so I went on through the 5 ‘funds’ of money in the list, realising that I could make quite a few changes and still have a nice 5-way split of our money. This keeps things relatively simple, and helps to prioritise where you want your money to go. So the way I eventually managed to split everything was as follows:
- 50% on living expenses;
- 6% on relationship building;
- 6.5% on charitable donations;
- 7.5% on education;
- 10% on holidays;
- 20% on savings/investments.
You may notice there are six divisions instead of 5 – this isn’t a mistake, I just split the portions into 6 funds to make room for charitable donations.
I would really like to know what you think about these apportionments. How do you divide your income? Do you think Li’s advice is good, bad, or just plane insane?! Are there any other methods of dividing your income that you have come across, tried, or just plain laughed at?
Let me know, leave a comment below!
Photo credit: "Li Ka Shing" by EdTech Stanford University School of Medicine - Flickr: IMG_5485. Licensed under CC BY 2.0 via Commons - https://commons.wikimedia.org/wiki/File:Li_Ka_Shing.jpg#/media/File:Li_Ka_Shing.jpg