We’ve all been there. It’s only a week until the next paycheck, but you’re running low on funds and have no choice but to scrimp and save to make it till then. You can’t help but wonder, where has my money gone?
That’s a question many millennials today find themselves asking. While some aren’t budgeting at all, there's a good chance that even those who budget find it not working. Poor budgets tend to fail to account for irregular expenditures and miscellaneous items, such as birthday gifts and emergency repairs. Such items can add up quickly and leave you short of money each month.
Photo by Christian Erfurt on Unsplash.
Even if your bank balance looks healthy, remember that checking it only shows your balance for that day. It doesn't account for outstanding payments that you owe or will have to pay before your next payday! As a result, it’s good to keep in mind that having a positive balance on any one day does not necessarily mean you’re budgeting well.
A good budget is one that prevents you from overspending each month and protects you from spiralling into debt. It should also help identify what you can afford each month, helping you to stay within your means while helping you save for your future as well.
That said, creating budgets isn't enough, as you must still learn to stick to it. To help you nail the right techniques and disciplines, read on! Following the advice here, budgeting can be easy, leaving you in a better position to hit your financial goals.
Few of us have outright financial goals, but rather life goals that have financial implications. Planning how you'll achieve your financial goals allows you to better control the things you care about in life, such as what house you buy, the wellbeing of your loved ones, the possessions you own and the causes you give to.
List your financial goals - categorise them into short-, medium- and long-term goals, rank them regarding priority and create separate bank accounts for them.
Many people follow the 50:30:20 rule, a financial rule established by US Senator Elizabeth Warren regarding budgeting. This rule involves dividing your after-tax income into three categories: essential needs (50%), discretionary spending (30%) and savings and investments (20%).
Also, this after-tax income should include any other income on top of your salaries, such as side-hustle income, interest, investment dividends and welfare payments. If you live in a country where taxes are not deducted from your income, estimate how much you would be paying for the current year and set a 12th of that aside monthly.
While you and your employer's CPF contributions to your savings are done automatically, you should aim to implement the 50:30:20 after CPF deduction. By that, we mean not considering the total employee + employer contributions as counting towards the 20%. This will ensure you have good personal cash flow and be more on track to reach your retirement goals.
We recommend that you follow the ‘pay yourself first’ rule, where the emphasis is on the importance of doing the 20% savings and investments part first. This method prioritises long-term saving goals, such as retirement. By saving first and spending later, you'll have fewer funds available for the remaining period before you get paid again — meaning you're more likely to spend sensibly. With that said, it's important to note that what you are saving for should be of high importance - do not ‘pay yourself first’ if it is for a holiday... especially when you have high levels of outstanding credit card or other high-interest debt that needs paying.
More than just savings per se, this should also include the repayment of high interest rate debt.
Do this first!
As mentioned earlier, establishing financial goals is essential in life. By being aware of your financial goals, you can allocate your 20% accordingly. The importance of saving for long-term financial goals from an early age cannot be understated! It’s not just a chore, obviously - there are some real benefits to it, such as the option of taking early retirement!
Photo by Sandy Millar on Unsplash
Putting 20% away into your savings and investments first is the target. You may not be able to hit 20% straight away, so try to make a start with whatever you can. Over time, adjust your lifestyle to get there (and beyond)!
If you’re starting with savings, establishing an emergency fund of three to six months' worth of after-tax income is a sensible goal. After hitting that milestone, you can then focus on longer-term goals such as a retirement fund.
If you intend to start investing, be sure to do your due diligence before investing and be aware of the fundamentals. Investments should suit the time frame of your goal, be diversified to minimise the risk of financial loss and focus on controlling, rather than avoiding, risk.
These are bills that you must pay and things you basically need to survive (i.e., housing, life insurance, groceries, transport bills, utilities). Although fixed costs may be hard to cut back on, you can cut down on variable costs more easily. Not sure where to start? Look at your credit and debit card statements for a rough sense of what you’re spending most on. Don't forget standing and direct debit payments, and watch out for subscriptions - these can quickly add up!
Tip! Grocery bills can be reduced through the supermarket price comparison app Price Kaki from the Consumers Association of Singapore (CASE).
Take a step and download Price Kaki: iOS | Android
This part of your income covers things that you want but do not absolutely need (i.e. going out to bars and restaurants, vacations, clothing). As most of these are optional, logically speaking, this should be the easiest category to cut back on. However, it does take a lot of willpower to keep within budget, as it might mean changing a lifestyle you’re used to. Every choice matters!
Singapore is one of the most expensive countries in the world, so the saving effect of small choices such as eating in rather than out, choosing public transport over calling a Grab, or even running in the park over locking yourself into a gym membership can make a huge difference.
On top of making good spending decisions, another way to save in this area is to look out for cashback rewards. Many banks and card providers offer rebates, cashback and rewards in return for spending. Finding one that suits you is certainly a good way to earn back money on your discretionary spending!
Few elements of your budget are guaranteed, and your income, expenditure and lifestyle habits will change over time, meaning your budget may not always perfectly align with the 50:30:20 rule.
Don't be too hard on yourself if you mess it up occasionally; just make sure you adjust your spending patterns accordingly into the following month(s)!
BUDGETING - SPENDING vs SAVING. COMPLETED. ✅
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