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50/20/5 a saving and spending rule of thumb

15 Jan 2021

Budget. Does anyone like that word? How about this instead — the 50/20/5 rule? It's our simple rule of thumb for saving and spending: allocating no more than 50% of take-home pay to essential expenses, 20% to retirement savings, and 5% to short-term savings.

1. Essential expenses: 50% 

Some expenses simply aren't optional — you need to eat, and you need a place to live. Consider allocating no more than 50% of your monthly income to ‘must-have’ expenses.

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Just because some expenses are essential doesn't mean they're not flexible. Small changes can add up. Buying groceries when they are on sale, and taking your lunch to work, considering a less expensive home or apartment are a few ways you may be able to save. Look at which essential expenses are most important, and which ones you may be able to cut back on.

2. Retirement savings: 20%

It's important to save for your future—no matter how young or old you are. Why? Because the Hong Kong pension schemes (Mandatory Provident Fund or Occupation Retirement Scheme Ordinance) are not going to provide all the resources to support the life you want in retirement.

Our Retirement Savings Guidelines1 suggest aiming to save at least 20% of your pre-tax income a year over the course of your working life. You could consider making additional voluntary contributions to your employee MPF account. Or you could open a Tax-Deductible Voluntary Contribution (TVC) account and make additional contributions there. TVCs are eligible for a tax deduction where you can enjoy tax savings up to HK$10,200 per year (The actual amount of savings is determined by a number of factors). To know more, please click here.

3. Short-term savings: 5%

You also need an emergency fund. An emergency, like an illness or job loss, is bad enough, but not being prepared financially can only make things worse. A good rule of thumb is to have six months of essential expenses readily available. How to get to 5%? Having this money automatically taken out of your current account, or soon after, pay day and put into a separate account just for short-term savings can help you reach this goal.

Our guidelines aren’t about micromanaging every penny but analysing current spending and saving based on our three categories can give you control and confidence.


1 Fidelity Retirement Savings Guidelines is based on four key metrics - savings milestones, savings rate, income replacement rate and probable sustainable withdrawal rate. Fidelity Retirement Savings Guidelines suggest that people in Hong Kong should save 12 times their annual income by the age of 65 and save at least 20% of pre-tax income in order to maintain their current lifestyle in retirement. The Fidelity Retirement Savings Guidelines are for reference only and certain assumptions are applied.

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Retirement Savings Guidelines

Rules of thumb that make retirement planning simple