The Rayo Money Framework 2

5 min readMay 25, 2021


Part 2: Get Started on your Savings Plan

Welcome to Part 2 of the Rayo Money Framework!

In Part 1 of this series, we gave a quick snapshot on elements that made up the Rayo Money Framework, and also covered tips and tricks on how you can track and collate your income from various sources. You also learned how to create your budget, and track and control your expenses. If you need a refresher, revisit these ideas here:

5 Elements of Rayo Money Framework:

  • Income
  • Expenses
  • Savings
  • Insurance
  • Investments

In Part 2, we will dive into another critical aspect of your money situation — savings. Your income is what keeps you going today, but to ensure that your future is protected as well, you need savings. And to be financially independent today and in the future, you must create a savings plan. And this is what this article is all about. Here, we will show you how to manage and control your savings. We will also explain how you can find your “net worth”, create an “emergency fund”, and set up a “savings fund” to create wealth.

Don’t worry if these terms sound overwhelming right now. As you keep going, you will see how the Rayo Money Framework simplifies all these ideas for you. Just make sure that you don’t just read or skim through the ideas. Imbibe them, and take action as soon as you can!


In this section, we’ll talk about savings — both for sudden emergencies as well as for the future — and how you can manage your debts, if any.

The first thing you need to do is consolidate everything you know about your financial situation. This means you need to understand your “net worth”.


Your net worth primarily consists of your:

Assets: what you own

  • Bank account balance: checking, savings, etc.
  • Property: home, building, office, factory, land, etc.
  • Investments: taxable and non-taxable
  • Jewelry
  • Intellectual Property: rights to a book, piece of music, invention, etc.
  • Vehicles
  • Stocks or bonds
  • 401(K) plan

Liabilities: what you owe

  • Loans
  • Mortgages
  • Credit card debt

Net worth = Assets — Liabilities

If you want to grow wealth, your Assets must be greater than your Liabilities.

A good way to find your net worth is to create your Personal Balance Sheet. Remember how we created a Personal Income Statement in the previous section? A Personal Balance Sheet is a similar exercise, albeit with Assets and Liabilities, rather than Income and Expenses.

Here’s an example of what your Personal Balance Sheet might look like:

Understanding your net worth will help you get a better sense of your financial progress and goals, because if you know what you’re worth, you can decide how much you need to save and invest for the future.


According to the 50–10–20–20 rule, you must allocate 20% of your income to an emergency fund.

An emergency fund is what you save to manage unforeseen events:

  • Job loss
  • Accident
  • Sudden illness
  • Unplanned expense due to a natural disaster

You should not touch these monies for your living or lifestyle expenses. If you find yourself falling short, you should find ways to cut your expenses, rather than dipping into this fund.

This is because:

  • Living and lifestyle expenses fund your present
  • Savings and emergency funds are for your future

When it comes to this fund, one great rule of thumb to follow is to “pay yourself first”. This means you should always set aside money in your emergency fund before you spend any money on your living or lifestyle expenses. And the best way to maintain discipline with this item is to set up standing instructions (SI) in your bank account. Set up a monthly SI so as soon as your checking account is credited with your income (from your primary source, e.g. job), 20% is automatically transferred to a separate emergency fund account located at either the same bank or at a different bank. This is what paying yourself first means.


What is the difference between a SAVINGS FUND and an EMERGENCY FUND?

Simply put, an emergency fund is what you put aside to protect yourself from unforeseen events, while a savings fund is what you set aside to create wealth for the long term.

Now you can either leave this money in your bank account where it will earn interest, or you can invest it in a financial instrument like stocks, Certificates of Deposit (CD), bonds, etc. Bank interest rates on savings accounts tend to be very low, so leaving your savings here is not the best way to create long-term wealth. This is where you need to be smart with your savings, and invest it!

How much money should you put into your Savings Fund?

This would depend on both your medium and long-term life goals and your net worth.

Examples of life goals:

  • Buy a house
  • Complete an advanced degree (Master’s, PhD, etc.)
  • Get married
  • Have a baby

Try these strategies to set up and manage your savings fund:

  • Identify your key goals and assign a timeline to each
  • Identify the amount of money you would need to meet that goal as per that timeline
  • Calculate how much you need to earn (income), spend (expenses) and save (savings) to match this amount
  • If you have loans or other debts, make sure you consider your loan repayment schedule in your plan
  • If you’re on an existing loan (say, a mortgage) and are out of your lock-in period, find out the latest rates, and if you can refinance it with a lower interest rate

Tips to increase your savings

  • If you foresee a large expense in the near future, cut unnecessary/lifestyle expenses today
  • Lower the amount you allocate to your lifestyle expense budget, and move the difference to your emergency or savings funds
  • Avoid using a credit card if you find it difficult to control your spending
  • But also reduce the amount of cash you carry in your wallet to minimize the temptation to make cash purchases
  • Opt for a card that gives you rewards, cash rebates, or air miles with every purchase
  • Identify repeated expenses and see if you can either club them into a one-time expense, or if you can eliminate them entirely

Next: Part 3: Protect Yourself with Insurance and Grow Your Wealth with Investments

Congratulations on finishing Part 2 of the Rayo Money Framework! By now, you have a good handle on the three critical parts of your unique financial situation — your income, expenses and savings.

In the third and final part, we explore two more ideas to round out your financial plan — insurance and investments.

If you’d like to revisit Part 1 of the Rayo Money Framework on income and expenses, click here

  • Disclaimer — The contents on this site and the Rayo Money Framework are for informational purposes only and does not constitute financial, accounting, or legal advice.




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