This question has never been answered accurately by anyone. Pero huwag kang mag-alala — you’ll know the best answer to it in this Smart Money Tip!

Before we get to the answer though, it is equally important to note that this question has roused various answers that, if you follow them, will NOT ensure the achievement of your goals.

Nandiyan ang “save-10%-of-your-income rule,” ang “70-20-10 rule” (70% of your income for expenses, 20% for savings, and 10% for tithing), at ang pinakabagong rule, ang “80-20 saving formula.”

Said to be patterned after the Pareto Principle — a theory by Vilfredo Pareto stating that 80% of the output from a given situation is determined by just 20% of the input — the 80-20 formula was introduced by MoneyMax via a Rappler article.

6 - Pareto Principle

So, ano ba talaga ang 80-20 formula? At ito na ba talaga ang tamang kasagutan sa tanong na, “How much should you really save to achieve your goals?” Let’s find out by showing to you the same Rappler article and analyzing it to reveal Smart Money Tips that we should all learn.

We all want to save.

But how do you actually do it? How do you budget your income? Is your salary enough to cover your needs and wants?

Image courtesy of Shutterstock.

Image courtesy of Shutterstock.

As such, we introduce to you the 80-20 saving formula, patterned after the Pareto’s Principle, the “law of the vital few.”

Here’s how it should go: The rule is simply to save 20% of your net income, and then spend the rest (50% needs + 30% wants = 80% spending).

If you exceed 80% for needs and wants, then you are spending beyond your means, and could be a reason why you will be in debt.

So, if budgeting is not your forte, this formula is for you.


Adjust your lifestyle.

Strike a balance in looking after your present well-being and taking care of your future. This saving practice definitely works to strike the balance between spending and saving – saving for the future and spending right for your needs and wants. If you adjust your lifestyle according to your goals, then you are good to go. Be sure to properly define what your needs and what your wants are.

Make it fail-proof.

This rule may not work for all simply because people have different lifestyles, spending, and saving habits. Moreover, we have different personal goals, dispositions, and income levels. For some, the 80-20 saving formula can be a challenge.

Keep trying, keep practicing.

Like any firsts, the 80-20 saving formula rule could be difficult at first. Keep trying until the day comes that it is no longer a chore for you to set aside a part of your income before you spend for anything. Here are 4 tips to ease your way adhering to the formula:

  • Research and compare deals when paying for a product or service
  • Use envelopes when you keep your cash and label them for specific payables
  • Keep a mindset during paydays that only 80% of your net pay is for spending
  • Enroll in a regular (monthly or bi-monthly) auto-debit savings account

Practice makes perfect.

If you make it a point that this practice is no-sweat for you, it will be easier to be more flexible in your finances later on. Eventually, investing and paying off all your debts will be as easy as saving. After years of practicing it, investing and spending your money might be the only problem left for you to deal with – and that is a good problem.

Do you think you can follow the 80-20 saving formula?


Source: MoneyMax via Rappler

Lessons learned

Anong Smart Money Tips ang matututunan natin from this article?

Though the article has good intentions, we unfortunately have to mention that the 80-20 saving formula is severely flawed.

Bakit namin nasabi iyon? Ito ang mga dahilan:

1. It is based on a FLAWED understanding of the Pareto Principle.


Sabi nila, ang 80-20 saving formula daw ay galing sa Pareto Principle. Ang problema nga lang, mali ang kanilang pagkaka-intindi sa Pareto Principle.

Paano ito nagkamali? This can be best explained by one of the actual commenters in that Rappler article. There, a portion of Francisco Lukban’s comment reads:

This is totally ingruent [sic] with what is traditionally known as the Pareto Principle wherein it is observed that 20% of an entity is responsible for 80% of a result or conclusion.

In this case, you are just basically telling people to save 20% of their income which actually has nothing to do with the 80% in terms of cause or effect.

6 - Pareto Principle in businessSimply put, the Pareto Principle, as we mentioned earlier, theorizes that 80% of the output from a given situation is determined by just 20% of the input. Though this is counterintuitive to the natural idea that 80% of one’s output should result from 80% of one’s input, semblances of the Pareto Principle can be typically observed in business, economics, and lots of other instances.

Kunwari, kung may 10 klaseng produkto na binebenta ito ang isang negosyo, 2 dito (o 20%) ay siyang nagbibigay ng 80% ng sales.

The 80-20 saving formula, however, simply states that you should spend only 80% of your income and save the remaining 20%. Nothing in that saving formula suggests similarities with the real essence of the Pareto Principle, in that the 20% will produce 80% of the output.

Mukhang ang kinuha lang ng 80-20 saving formula sa Pareto Principle ay ang mga numerong “80%” at “20%”. Kaya wala talaga itong kinalaman sa Pareto Principle.

Given this, would you really want to follow a saving formula that mistakenly interpreted what it attempted to pattern itself after?


2. How much you have to save should be dependent ONLY on the future cost of your goals.


How much you save is not just any random percentage of your income. Rather, how much you save — and consequently, your personalized savings rate — depends solely on the amount you have to set aside every month for you to be able to save up for the future, inflation-adjusted cost of your financial goals.

Again, hindi lang ito basta kahit anong random number o 10% o 20% of your income. Your savings rate depends on what your goals really are, how much they cost, and how much you make every month.

To explain it better, let’s illustrate with a simple example:

20 - Dream Home -Let’s assume that the future, inflation-adjusted cost of your dream house is P2 million. Let’s also assume that you’re giving yourself 18 years to attain this goal.

So, magkano talaga ang kailangan mong i-save kada buwan?

Para malaman ito, i-divide mo lang ang P2 million by 216 months (katumbas ng 18 years). Ang resulta: P9,259.26 per month.

Ang ibig sabihin nito, P9,259.26 ang halaga na kailangan mong i-save kada buwan for the next 216 months para makasiguro kang mayroon kang P2 million para sa dream home mo pagkatapos ng 18 taon. It can’t get any more exact than that!

Kaya kung ang kita mo ay P60,000 kada buwan sa iyong trabaho, you have to set aside 15.43% of your income to attain this goal. This is your personalized savings rate. Not 10%. Not 20%. Hindi kung anong random or generic rate.

(If you have other goals, simply add the inflation-adjusted costs of all those goals. You’ll then be able to know how much you’ll need to set aside every month to attain all of your financial goals!)

Kita mo ba kung bakit ang ganitong paraan ay mas magaling? By setting SMART (Specific, Measurable, Achievable, Realistic, and Time-bound) goals, you’ll be able to know their future, inflation-adjusted costs.

19 - Smart goals

And when you know the costs of your goals, you can then determine how much you have to save every month so you can surely achieve them!

Ganitong paraan ang matututunan mo sa Money University. Hindi ito random o hula-hula. Hindi ito binase sa maling pagkakaintindi ng kung anu-anong principles.

Rather, Money University gives you personalized, practical, and goals-focused knowledge that will truly help you reach all your financial goals.


Having learned these Smart Money Tips, have you computed how much you have to set aside every month to reach your goals? At ano ang iyong personalized savings rate? Let us know in the comments section below!


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