It’s stressful to not know whether you will have enough cash to last until the end of the month, with no budgeting strategies in place. But many Singaporeans live like that from pay check to pay check.
It doesn’t have to be that way. If you’re currently in that situation, you can learn some budgeting strategies and build substantial savings.
Why do people live from pay check to pay check?
You may have trouble making ends meet from month to month because you simply have no oversight on what you are spending on. You don’t have the practice of budgeting and would not be able to say for sure how much you spend on a particular category of needs like groceries, or transport.
Or, it could be that you are currently in the middle of a financial emergency. In which case, if you didn’t already have an emergency fund, you would be struggling to bring in the dough for medical appointments or car repairs.
But don’t worry, get out of this cycle with this 3-step process:
1. Housekeeping — How much am I spending currently?
The first step of straightening up your finances is to note down your current expenses either in a notebook or an excel sheet.
If you use credit cards predominantly, you can get records of the types of things you spend on easily. If not, then you might want to download a money wallet app to help track your spending for a couple of months. Don’t make any changes for now.
Sometimes we unconsciously spend on things without even realising it, so this housekeeping process helps you take a step back so you can analyse the areas you can cut back on. You may then want to classify into two categories: essential and good-to-have expenses.
- Rent or house loan payments
- Monthly repayments: Car loans, student loans, conservancy fees
- Utility bills
- Insurance premiums: Health insurance, life insurance, car insurance, etc.
Under essential expenses, you want to list down the things that you absolutely need and cannot cut back on for you and your family to live at a basic quality of life.
- Digital subscriptions: Netflix, Adobe, Spotify, etc.
- Shopping: Clothes, household, gadgets, etc.
- Wine and dine: Eating out at restaurants and even food delivery
On the other hand, some running expenses in our life are just good-to-haves. Things like a Netflix subscription that your siblings always leech on, or loots from blogshop shopping. In other words, you won’t die without them even though they do make you happy.
2. Automate payments for essential items and eliminate the rest
Armed with your list of current expenses, you can now clearly see what are needs and what are not. If you’re living from paycheck to paycheck, the next step is to decide what to get rid of.
For essential expenses, you can automate payments as far as possible, setting payments preferably on payday, or just a few days after so that they are paid before the money goes to other things.
Then, eliminate the good-to-haves, such as shopping and restaurant dining. If you have done your housekeeping well, your weaknesses will be apparent. The $500 you spend on Grab rides every month will show up. The cost of opening bottles at the club every week will show up.
Don’t feel guilty and ashamed. Now, you can take proactive steps to cut back on them.
The beginning will be difficult, but it’s a necessary pruning process. Tell your friends that you’re just challenging yourself to a 30-day shopping fast or restaurant ban. They might even want to join you in your quest!
If you want to build up your financial reserves even faster, you could go further than that. Give up on the car and take public transport. Or, cut back on premiums going toward investment-linked insurance policies that are not absolutely essential to life.
But obviously, use your discretion. If you are not in such a dire state, you can still keep some of those things.
3. Have a budgeting strategy — What tactic will work on me?
There are tons of budgeting strategies out there. The right one correlates to your personality and lifestyle. Here are three types of techniques that you can consider based on your personality type.
A. 50/30/20 budgeting system
This budgeting tactic basically works like this: 50% on needs, 30% on wants and 20% on money goals. With this system, you draw out the margins within which you can spend freely. The simplicity of this system is that there are only 3 main categories.
You could change the percentage if, for instance, you feel that you want to save and invest more, but the key thing is to allocate fixed percentages of your salary so you know that you are always in the green.
Based on a take-home salary of $3,000:
|Food, transport, entertainment (Often good-to-have expenses)||$900|
|Saving & investing||$600|
The key is to keep to it consistently, so I would advise automating essential needs and saving/investing goals so you never forget.
If you are using a credit card or a digital wallet like GrabPay to benefit from cashback, air miles and rewards, I recommend that you limit to 1 or 2 cards/wallets. Make it a habit to check in every week to look at your statements to make sure you stay within the set percentage of 30%, set aside for food, transport and entertainment.
Good for: People who can keep within a fixed budget consistently.
B. Reverse budgeting system: Save First, Spend Later
Some people call this the reverse budgeting system, but I actually feel it’s more straightforward, maybe because I love knowing what exactly I’m paying for.
Essentially, you note down every single item that you have to pay for, as well as set aside a budget for flexible spending.
|Car loan||GIRO and Bank||$800|
|Car upkeep (petrol, parking, ERP, etc.)||Bank||$300|
|HDB conservancy fees||GIRO||$60|
|Phone bill||Credit card||$20|
|Saving for Europe trip||Automatic savings goal||$200|
|Saving for kiddo’s education (Savings Plan)||Automatic savings goal||$400|
|Saving for emergency fund||Automatic savings goal||$200|
|Entertainment and shopping||Bank||$500|
Like the 50/30/20 system, pay essential expenses on payday first. But for the Reverse Budgeting system, you set exactly how much you are saving and spending based on your needs without set percentages.
I find it useful to also note down how you will pay. You may want to have 2 separate bank accounts, one that you use to draw money for daily use, labelled “Bank” in the above table, and one for all other things, such as investments, credit card payments, and monthly bills paid via GIRO.
In this way, you’re only drawing from 1 account for your daily expenses and are safe to spend whatever that is in it, so you don’t have to monitor your spending constantly.
Good for: People who want to be clear on how much they want to spend and save instead of following prescribed percentages.
C. Cash envelopes
Sure, contactless payments are super convenient. But they tend to make you overspend and aren’t really great for people who are not sensitive to numbers. You know, those types of people who would buy something and not remember how much it costs?
If right now you can’t give a ballpark of how much is left in your bank account, only that you suspect it’s not much, it signifies that you’re quite a big picture person. It’s not a bad thing — many top leaders aren’t. But before you reach the point where you have minions to help you handle your daily budgets, you have to do it yourself. For someone like you, try budgeting with cold hard cash.
Yes, you’re giving up the tantalising cashback, air miles and rewards by not using a credit card, but it’s being penny wise and pound foolish to keep a credit card for those things if you can’t even control your spending. Or worse, if you can’t even pay back the minimum sum. Don’t end up with credit card debt — pretty much the worst kind of debt.
Fix a sum to draw out with the 50/30/20 system or the Reverse Budgeting system. After you make necessary payments on ibanking, take out a certain amount of cash, either weekly or monthly. As the cash diminishes, you can have a real tangible sense of how you are spending for the period and adjust accordingly.
Good for: People who are not sensitive to numbers and tend to overspend with credit cards.
If there is nothing else left to prune, you have to increase your income
Getting out of debt or stretching your paycheck is not all about cutting down expenses.
Sometimes, if you have done your housekeeping and implemented your systems, you may find that your income is just simply not enough.
In that case, you may want to increase your income.
Is your job paying you fairly? If not, talk to your employer about your contributions in the company and ask for a pay raise, or change jobs for better pay.
Perhaps you might want to consider doing a side hustle to help increase your income as well.
Do you know how much you’re spending each month? Share with us in the comments below!