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Budgeting Starter Pack
A budget when done right, should make your spending more efficient and effective, rather than becoming restrictive. It will help you reach your short and long term financial goals. A budget will also help you see where your money is going because relying on memory is just not gonna cut it.
8 Steps to Create A Budget That Works For You
Find out why you want to budget
So, you want to learn how to be the dominant in your relationship with money? The very first step is to find out why you even want to budget. There can be several common reasons, like
- You are finding ways to save more money, saving $100,000 by 30 for example
- You are trying to reduce spending on excessive areas like buying bubble tea every day or buying another pair of shoes to add to your collection of 80
- You want to stay on track towards your short and long term goals
- You want to live below your means
- You want to be be free of debt (our hearts are with you)
When you have reasons to budget you increase the chances of actually sticking to the budget, because you get emotionally invested in it which motivates you to stay consistent and discourages you from cheating!
Have more than one budgeting reason?
It's totally okay to have multiple reasons you want to budget, and there is no need to create different budgets for them. The budgeting categories below are broad enough to include virtually everything!
Be honest with yourself and fully understand where your money is going every month
According to SAV, humans have a memory span of short. So use a budgeting app!
- Don't rely on your memory to track expenses. You'll probably forget some transactions which are gonna affect the effectiveness of your budgeting.
- A good place to start is your credit card statements. That being said, credit card statements will not give you as detailed a record of your transactions as you'd like, and sometimes you may forget what that transaction was about.
What we recommend:
Use a budgeting app to track every transaction, no matter how small (okay but we don't mean to the cent). Small transactions can accumulate over time into a large sum. We know its gonna be tedious, but just take one step at a time and before you know it you would have completed a month's worth of expenses tracking. If you need some motivation just talk to us in the chat! Remember, a "somewhat good" knowledge of your expenses is not gonna cut it.
Budget tracking apps we love:
Don't forget about the one-off expenses throughout the year!
Insurance premiums renewalS
Annual Health Screenings
When you anticipate and budget for such one-off but significant expenses, you will also stay on track for your budgeting for the year. We tend to forget what we rarely see, so it is important to prepare for annual one-off expenses in order to stay within budget.
Identify your personal financial goals
You should also identify your personal financial goals, here are some common ones to get you started:
- Building an emergency fund
- Clearing your debt
- Saving for your first home and renovation
- Purchasing a car
- Saving for retirement
- Saving for children's university expenses
Prioritise building your emergency funds for rainy days
Most of us want to budget because we want to accomplish more with our limited money and still conquer the world. So identifying the size of your financial goals and knowing when they come will help in deciding how much to set aside for those goals, and what are some effective money making machines to achieve those goals. On a basic level, the bigger your financial goal, the more risky instruments you'll need in order to generate enough returns to close the gap between you and your financial goal. Having these goals will also help with the emotional investment aspect, to motivate you to stay consistent with your budgeting.
Stick to a structured budget
We have a super effective structured budget that covers all your expenses and commitments:
40% for necessities
Necessities include bills that you absolutely must pay for and need so you're still alive. They can be items such as mortgage or rent payments, student loans or credit card debts, food and groceries, transportation costs, phone bills and taxes. Any leftovers can be allocated into your savings. Sorry but your subscriptions (Spotify, Netflix) do not belong here.
10% for insurance
For pennies on the dollar, you can protect yourself when life gives you lemons. Budgeting, saving and investing for short and long term financial goals don't matter anymore if you get sick or paralysed and you can't work anymore, and then you'll have to start drawing from your savings or even liquidating your investments (possibly at the worst time) to sustain daily life. If you haven't got your hospital, critical illness and life insurance, you're in trouble.
Speak to SAV's Money Expert now to protect yourself against life's many lemons! →
20% for investments towards long term financial goals
It is more important to have time in the market, than to time the market. What we mean is you are your biggest asset, because it is you and your unique skillset that generates income which you can put into investments to grow your wealth, so focus on that and leave the investing to the professionals.
Talk to our Money Expert to figure out your long term investment strategy! →
10% towards savings
Savings are important to build your emergency funds and help you achieve your short term goals. Build an emergency fund of at least three months worth of income, so you give yourself time and space to adjust to any crisis. You can also consider building a bigger safety net of six or nine months, but be careful of hoarding too much cash as inflation will increase the opportunity cost of your money. Your money loses ~2% value every year sitting in the bank. This is why chicken rice is more expensive now than 10 years ago hor.
20% for wants
Okay we've got you here. Wants are things that are not absolutely essential for survival. Yes, your subscriptions belong here. They make your life more enjoyable and fun, but you can work out at home instead of getting that gym membership, or you can cook at home instead of eating out. That being said, we're not saying don't do these. We encourage living life to the fullest, just within a proper limit. Moderation is key!
A simple but effective way of budgeting:
The 4-1-2-1-2 Rule
Stop making these budgeting mistakes (really)
The many before us have been making these budgeting mistakes. Want your budget to work flawlessly? Make sure you don't:
Have unrealistic expectations
We tend to get excited about a new beginning or fresh start and might take extreme measures in our budgeting that are not sustainable and realistic. Be aware, and instead of having a strong start that eventually falters, take sustainable baby steps and ramp up the intensity after developing a habit. Consider if you are really ready to take an hour of your time every day to pack meals in order to cut down on eating out (if you eat out all the time), or if you can really replace hanging out with your friends with Netflix and chill sessions all at once. Hey, you're running a budgeting marathon, not a race.
Mix up nett and gross income in the budgeting
It is important to differentiate between income before CPF deductions and income after CPF deductions, depending on how you strategise your budgeting. If you wish to include savings for your first home in the budget, take into consideration CPF contributions, then plan your remaining expenses based on your income after CPF deductions.
Deprive yourself of expenses incurred for fun
Having a budget doesn't mean cancelling things you do for fun. Yes, we felt the need to repeat this. Budgeting is a tedious and long process, and sometimes letting yourself go a little will help keep you in the budgeting game for the long term.
Think you don't need a budget
Ownself check ownself, ownself scold ownself
At the end of each month, look back at your budgeting progress and see how you've fared! Take note if you overspent on any category of expenses, or if you managed to spend less than you budgeted. Your surplus can be carried forward to the next month where you can have a little more for your fun expenses, or you could just put it into your savings! At the same time, as you become more experienced in budgeting, you will make changes based on what you've learned to make your budgeting process more effective for you. And along the way, you will make more tweaks as you go through different life stages, where you'll face different commitments.
You gotta set up those automatic fund transfers
Once you have established your fixed expenses and a fixed amount of savings every month, you can set up GIRO payments to send those monies out of your bank account. Always save first, and treat savings as a non-negotiable that must be allocated, like an expense.
Automate the tough but necessary decisions
Many people treat savings as a last priority after expenses, which may not necessarily be a good habit. Also consider setting up a separate bank account meant purely for your savings, for which you can set up fund transfers for your savings.
Another good method is to call up your commitments and ask if you could shift the payment dates to a day after your salary is credited into your bank account, and then set up GIRO for those payments. This way, you settle the non-negotiables immediately, and the rest you can spend with a peace of mind.
*Common type of expenses to include in your budget:
- rent or mortgage payments
- electricity, gas and phone bills
- household expenses, like food and groceries
- medical costs and insurance
- transport costs, like car registration and public transport
- family costs, like baby products, child care, school fees and sporting activities
- Subscription expenses on Spotify, Netflix, Classpass or other similar subscriptions
- personal loan repayments
- credit card payments
- mortgage repayments
- car repairs and services
- medical bills
- extra school costs
- pet costs
*This is by no means a comprehensive list of expenses! A good way is to analyse your past year of expenses and group them into the 3 different types above.
To sum it up
Find reasons you want to budget. Know where your money is going. Plan for your financial goals. EMERGENCY FUNDS. 4-1-2-1-2. Start slow and you'll stay strong. Reflect on your budgeting. Automate your commitments!
Have questions about our budgeting process?
Ask our Money Experts! →
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