Salary increases but savings do not increase
After 4 years working as a marketing staff in Ho Chi Minh City, Ms. Nguyen Minh Anh's income increased from 10 million VND to 18 million VND/month. However, she only saved about 1–2 million VND.
Each month, she spends about 5.5 million VND on housing, electricity, water, internet and about 11 million VND on food, travel, computer installments and arising expenses.
According to Ms. Minh Anh, when her salary increased, she moved out to live separately and use some additional periodic services. Because most of her income has been spent on fixed expenses, some months she almost has no savings left.
Ms. Minh Anh's case shows that the salary does not fully reflect her personal financial health. More importantly, the real income is retained and the ability to respond if the source of income is suddenly interrupted.
Four numbers reflect financial health
Discussing this issue, financial expert Nguyen Thuc Khoa - Founder and Chairman of ERIC Capital, said that high revenue does not necessarily mean a business is healthy, and personal finance is similar.
The salary only shows how much we earn. More importantly, after earning money, how much we keep and how much income we have committed for the future," the expert said.
According to experts, young people need to monitor four indicators including savings rates, debt repayment obligations, fixed costs and provision funds.
The savings ratio is calculated as the remaining amount after spending compared to net income. If a person works for a long time but only keeps less than 10% of their income, they should review their spending structure.
A ratio of 10–20% can be considered a starting point, while a level of about 20% or more creates a relatively clear accumulation. For young people who do not have many family obligations, if income allows, experts recommend a savings ratio of about 20–30%.
The next number is monthly debt repayment obligations, including credit card payments, consumer loans, installments, and home loans. If the total amount of debt repayment accounts for about 35–40% of net income, financial pressure has begun to reach a noteworthy level.
Regarding consumer debt, experts believe that the lower the ratio, the better because most loans do not create additional assets or new sources of income.
Fixed costs are also an index that is easily overlooked. A person earns 30 million VND per month but has to spend 20 million VND on compulsory expenses, so the level of financial proactiveness is still not high.
Also according to expert Nguyen Thuc Khoa, ideal rent should be around below 30% of the income level. The total of fixed expenses such as housing, electricity, water, insurance, tuition fees, debt repayment and periodic registration services, if exceeding 50–60% of income, will greatly reduce the ability to manage when an incident occurs.
Finally, the reserve fund. According to experts, instead of just asking how much money is in your account, each person should calculate how long they can maintain their life if they lose their income from tomorrow.
If the contingency amount is not enough to cover a month, the level of risk is relatively high. Safe contingency funds should be equivalent to about 3-6 months of living expenses; people with unstable incomes may need more contingency.
According to experts, it is important to proactively retain a portion of income each month. If the entire salary increase quickly turns into fixed expenses or new debt obligations, higher income is still difficult to create a solid financial foundation.
