Earning for the Past, Present and Future

Recently I read an article by Rajen Devadason published in the Malaysian Business magazine February 16-28th, 2007. I think it is a great gem.

Here, I will summarize some of the concepts written by Rajen. I found that there are 3 parts of our money spent according to 3 time continuum.

1. Spending for the past
If we committed some debt in the past, such as housing loan, car loan or credit card debt, there is a portion of our present income set aside to pay for all these. Those are the expenses committed in our past.

2. Spending for the present
This includes our daily meal, petrol, and other current consumption.

3. Spending for the future
This is the portion of our income kept for future needs, like retirement, education, vacation etc.

Rajen said it is fair to have a balance portfolio – : 1/3 for each and we will have a balance financial statement. That’s probably why banks only allow our monthly debt installment of not more than 1/3 of our stable income.