Make a spending plan that you’ll love to live by. Like a good friend, it will need to communicate well with you. You’ll need to understand its ins and outs. Above all, you’ll want to feel comfortable with it 24 hours a day. So make sure that you’re consistently at ease with your budget. That starts with creating a budget that is simple and easy to respect and follow. An overly complicated spending plan can demotivate people in their budgeting efforts.

Many young Singaporeans are incredibly pessimistic about their financial situation. According to a Nielsen survey, eight out of 10 Singaporeans between the ages 18 and 29 are not confident about their current financial situation, while nine out of 10 feel that they are not financially prepared for the future. Although thinking about realising your financial dreams may seem daunting at first, getting there is achievable with a positive attitude and the right tactics.

To help you track earnings versus expenses, and to guide your spending habits, create a simple budget that you can easily follow. While a detailed budget with countless spending categories can be effective for some, it may sometimes feel too restrictive. A better alternative is an uncomplicated budget that lets you pay what you must first, and then spend what is left over without feeling guilty.

Here are four steps to help you set up this simple budget version.

1. Divide your expenses into four categories only

The first category is your fixed expenses, i.e. essential expenditures that reoccur every month. This group may include your mortgage, utility bills, phone bill, and transportation costs.

The second category is your mid-term and long-term financial goals, which you need to set now in order to build a solid financial foundation over time. According to Money Sense, this may include paying down student loans and credit card debts, building an emergency fund, or saving for retirement, your dream home, your wedding or a vacation.

The third category is your non-monthly expenses which occur quarterly, bi-annually, annually, every two or three years, or irregularly. This includes taxes, insurance premiums, car registration fees, educational expenses, birthday and holiday gifts, home maintenance and even haircuts. Such expenses are easy to miss because they do not pop up every month. Creating a spending category for these items ensures that you include them in your budget.

The fourth category is your flexible expenses for purchases that vary every month. This includes weekly groceries, occasional restaurant bills, cosmetics and health care items, movie tickets, and other personal expenses.

2. Calculate your allocation for discretionary expenses

Start with the amount of your take-home pay. Subtract your total fixed expenses, total allotment for financial goals and total variable non-monthly expenses. Once you have accounted for all of these and done the math, you’ll get the figure that you can spend on discretionary expenses – however you like – every month.

To help pace your spending and avoid blowing all that money within the first few days of the month, divide your flexible expenses figure by 4. This gives you a rough estimate of how much you may spend weekly on your wants.

3. Implement your budget using at least two bank accounts

Once you have worked out how much you need for fixed expenses, financial goals and non-monthly expenses as well as discretionary expenses, it’s time to implement your spending plan. To work with your budget in the simplest manner, open two separate bank accounts. Label one “fixed” and label the other one “flexible”. Break down every paycheck you get into one or the other account based on your calculations.

This kind of setup can help you avoid sucking money intentionally or accidently from the funds earmarked for your fixed expenses, financial goals and variable non-monthly expenses. Separate accounts will also make it easier for you to track your spending habits.

4. Manage the money in your discretionary checking account well

There are many ways to handle the cash flow from your “flexible” discretionary spending bank account. For example, you may opt to use a debit card so that you are better able to monitor and see each transaction you make.

You can also use cash only by withdrawing money from the bank every week. If you think you might otherwise have problems pacing your use of money in your “flexible” bank account, this can be an ideal strategy for you. Withdrawing a specific amount of cash at the start of the week can help you increase your awareness of how much money you can spend within the next seven days. It will be much more difficult to go over budget. Just make sure to note every single transaction either with pen and paper or a mobile application so as to keep track of your spending.

Another option is to use a credit card. This can be an ideal strategy if you feel that you’re sufficiently responsible to pay off your credit card balance in full every month. By using a credit card you can accrue reward points that can eventually pay off a month’s worth of expenses or even make your dream vacation possible.


The original version of this story was published in The New Savvy on Jan 12, 2017. 

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