5 Steps To Managing Your Budget! (in Singapore)
Just hearing the word makes you sian. The thought of planning how to spend the money you earn from work each month? Feels like even more work. But if you don’t make your money work for you, you’re gonna end up being a slave to it. For example, saving 80% of your income is stupid if it’s not enough for you to live comfortably, you end up dying of malnutrition before you even get to spend anything you saved. Budgeting must suit your personality and lifestyle or it’ll never work for you. Plus, if you’re not committed to a budget, you’re more likely to give up on it. So if you’ve never planned a budget before, here’s a simple 5-step salary budgeting guide to help you through allocating your income. Having a quantifiable goal to work towards can make a huge difference to how you save and spend money. And we’re serious about being quantifiable. So, don’t set goals like I want to be filthy rich and swim in money. But set goals such as I want to buy a flat by the age of 35. Just remember to give yourself a reasonable timeline to do so. Buying a flat by 35 is legit possible if you’re 25. But quite impossible if you’re… uh…. 34. And your 35th birthday is tomorrow. Most people have separate bank accounts for different purposes, usually one for daily expenses and another for saving money. Every time you receive your pay, you should immediately transfer your savings into a dedicated account. So even if you overspend on daily expenses, you will always have some money set aside in your savings account. And if you’re worried you might forget, you can apply online for a standing instruction that automatically transfers the amount into your dedicated bank account every month. 50% of your income should be set aside for things you need to spend on this might include things like groceries, utility bills, insurance premiums or loan payments. As Singaporeans, a percentage of your income has to make its way into your CPF account. So let’s not bother about that, and focus on the “Real” income, the money that you can actually touch. So for example, let’s say you earn $3500 every month, and after CPF deduction of 20%, your “real income” is $2800. Here’s what the breakdown would look like. Now that the first 50% is allocated, give yourself 20% of your income to go wild. Since this amount is set aside for your desires, spend it on what you whatever you want. This can be on entertainment like movies, shopping, eating out, karaoke, overpriced coffee and even more overpriced macaroons. You probably don’t need any help deciding what to do with this amount right? Regardless of how much you’re earning, start setting aside about 30% of your income on building a safety net. In order of priority, 10% should go to your emergency fund, 10% into insurance and the last 10% on long-term investments. 10% of your savings should go into an emergency fund. An emergency fund is going to tide you over when you’re between jobs or if you come down with a medical condition. Eating at Gordon Ramsay’s new restaurant is NOT an emergency. It’s best to set aside approximately 3 to 6 months’ worth of your pay, so that if anything happens, at least you’ll have some buffer money to tide you through those tough times. Think you have enough in your emergency fund? Stop putting this 10% in here and go on to the next priority. 10% of your savings should go into protection building. Insurance can be complicated, and sometimes talking to an insurance agent can make you even more confused. Find out from several sources what the best insurance products are on the market. You’ll want to focus on getting coverage for the following: death, total permanent disability, critical illness, disability income, hospitalisation, and personal accident. While you’re still young and healthy, insurance premiums are going to be cheaper, so start small and then increase your coverage once you can afford it. Once you’re feel you’re sufficiently covered, put the rest of your funds into the next priority. The last 10% of your savings should go into long-term investments. Everyone wants to get rich quick, but first start by getting rich slowly. Time really is money when it comes to investments. The earlier you start investing, the more you get in the long run, regardless of the amount. There are many investment products such as ETFs, stocks and unit trusts, which can help you to achieve your goals. Choose an investment product that suits your personality. If you’re flush with cash and looking for regular dividends, consider investing in REITs. If you’re a kan cheong spider who will sell as soon as stock prices drop? Well…maybe choose least risky products.