budgeting in singapore

The Ultimate Guide to Budgeting Your Income in Singapore

You may have a good job and earn a good income but panic at the end of the month due to poor financial planning. Poor financial health indicates that you need to start budgeting your money.

Having a budget for your monthly expenses is one of the best ways to ensure you remain financially healthy. You can get a financial planner to do your budget, or you can learn how to make one yourself.

You could hire a financial planner to help you with your budget. But the truth is if you are already broke, you cannot afford a financial planner at the beginning. You can budget your money without needing a professional.

We will teach you how to best budget your income and keep track of your finances in this post. Follow the following steps to start your journey.

Set Your Financial Goals

The first step of creating a budget is making the financial goals you are working towards. When you have clear financial goals, it will be effortless to purposefully budget and reach your desired goals.

However, to achieve maximum success, you will have to differentiate between goals and wishful thinking. While you can achieve anything you put your mind to, you need to set goals that you can achieve with your income.

Your goals need to be quantifiable and specific to make them less overwhelming. This way, it will be easy to take actionable steps to achieve them.

For example, if you say you want to become rich, you will need to break down the goal into hard figures on how much money you need to have.

Here are some examples of vague goals and how you can make them more attainable.

Vague Goal A specific, quantifiable goal
Own a home Buy a five-bedroom HDB flat by the age of 34
Get rich I want a net worth of S$50 million by age 50
Give my family a comfortable life I want to boost my income by $3 million before my eldest child is in primary school
I want to retire early I want to have S$30,000in passive income and savings and investments worth S$6 million by the time I am 45

 

When you have specific, clear-cut goals, you can do the math and know how exactly you would like to achieve them.

One of the main reasons you should quantify your goals is to see whether you can realistically achieve the goals.

Most Singaporeans say they want to retire by 30, but most haven’t calculated how much they will need to make, save and invest to retire then. SO most end up coming up with a more realistic timeline.

In summary, make sure that you break down your goals into actionable and measurable short-term goals.

Identify Your Income Streams and Amount

After setting your goals, you must calculate how much money you take home every month. This figure might sound obvious to you, but the figure you have in mind is before the central provident fund (CPF) and tax deductions.

In addition to your monthly salary, ensure that you add other income sources that you might have.

Identify Your Expense Categories

After realizing how much you take home, it is now time to calculate your expenses. Everyone has a different idea of the reasonable portion of their income on their monthly expenses.

For people who earn a considerable amount of money, it is possible to save almost 99% of their income. Unfortunately, it is not feasible for most of us. The general rule is to spend 50% of your income on your monthly expenses.

When we talk about 50% of your income, we mean 50% of the amount left after all your deductions.

So what are your necessary expenses? These are the expenses that you cannot live without. They are expenses such as rent, kids’ school fees, water bills, and electricity.

The Likes of restaurant bills and regular phone upgrades are not necessities since you can easily live without them.

Here is a list that will help you differentiate between your needs and wants.

Necessities Wants
Groceries Restaurant meals
Utility bills Regular smartphone upgrades
Insurance premiums Overseas holidays
Home loan repayments Home décor items
Kids’ school fees Enrichment and tuition
Healthcare Cosmetic surgery
Public transport Shopping
Home and vehicle maintenance Entertainment
Gym membership

 

When you spend only 50% of your monthly expenses, you leave the rest of your income for savings account and investments.

money tree with dollars

Try the 50-30-20 Rule

The 50-30-20 rule suggests that you split your income into three categories. They include:

  • Essential need – 50%
  • Discretionary spending – 30%
  • Emergency expenses, investment, savings – 20%

Say you earn S$5,000 a month after all deductions, including taxes. So, according to the rule, S$2,500 should be spent on all your necessities. The S$1,500 on your wants and the remaining must go to savings and investments.

This plan is easier said than done, but you can easily allocate your money on the items it falls on with proper planning.

Allocate 50% of Your Income to Your Needs

As we mentioned above, your needs include expenditures such as housing society bills, grocery shopping, fuel, and Singapore Power bills.

It also includes irregular and compulsory payments such as annual life insurance premiums, car premiums and health insurance. In short, this category includes all the necessary spending that you need to go about your regular life.

When you decide to cut down on your expenditure, you might want to re-examine your spending habits, including where you shop and the products you use to shop. For example, you can choose to start shopping in supermarkets that offer numerous discounts.

Allocate 30% of Your Income to Discretionary Spending

Discretionary spending refers to the money you allocate towards activities that you do for fun. You do not need these activities to survive.

These activities are not classified as essential, but they help you lead a quality life. You must ensure that you do not classify them as needs but as wants to make sure that you control your expenditure.

Activities that fall under this category include going out to eat in expensive restaurants and expensive gym memberships. One of the best ways to reduce your expenditure on these activities is by tracking how much you spend in these areas and then trying to cut back where you can to save money.

Allocate 20% of Your Income to Savings, Investments, and Emergencies

Investing and saving part of your income is very vital. However, it is not always easy since you immediately see the benefits. The rule states that you should allocate 20% of your income to saving at the start of the month. If you wait to invest whatever is left after spending, there may be nothing to invest.

It is also essential to ensure that you invest in the right products from the beginning. Some people feel that putting their money in a term deposit is more profitable, while others think investing in stocks and mutual funds yields better returns.

To know which is the best form of investment for you, you will need to do extensive research to know which products work well for your financial goals. Please do not go with advice from friends and family since different investment products work for other people based on their needs.

You also need to put money aside for emergency expenses not covered on your recurring monthly expenses. Emergency funds come in handy for medical and hospital bills. If you do not have enough money to cover your emergency from your savings, you can borrow some from your discretionary spending.

Steps to Follow When Starting Your Saving Journey

Here are the steps to follow when beginning your saving journey:

1. Build an Emergency Fund

When you start budgeting, the first thing that you should do with your savings is to create an emergency fund. An emergency fund should sustain you for about 6 months. When the economic times are uncertain, you might want to save for about nine months.

The emergency should be highly fluid. This means that you should have access to the money at any time.

If you have a high-interest debt pending, you should pay it off as soon as possible to offset your budgeting plans.

2. Consider Your Long-Term Goals

Once your emergency fund is set aside, you now need to consider your long-term goals. When you place saving goals, you are motivated to achieve your long-term goals.

Examples of long-term goals include:

  • Home renovation or home purchase
  • Saving for your child’s education
  • Financial independence or retirement
  • Starting a family

Read more on how to budget for a home renovation in Singapore.

3. Decide Where to Keep Your Funds

The last step of your savings plan is to determine where you will keep your money. Rather than placing your money in bank accounts, you can put it in other places to accrue compound interest. Compound earning will help you achieve your goals much faster.

Safer options for your savings include fixed deposits, bonds, and high-interest savings accounts that can help you earn interest while protecting your principal amount.

For higher yields, and you can withstand loss, you can put your money in unit trusts and take advantage of the stock market with individual company stocks and index funds.

If you want to plan for your legacy, you can use life insurance and an insurance savings plan to protect your loved ones should anything happen to you. There are many investment options available in the market. You can seek financial advice from a professional to make the best financial decision.

What Are the Benefits of Applying The 50-30-20 Rule?

Using the 50-30-20 rule comes with the following benefits:

  • It instills financial planning
  • It will push you to evaluate your spending, which leads you to make better financial decisions
  • Advanced planning will help you achieve your goals more efficiently.

Why Is It Important to Use The 50-30-20 Rule in Singapore?

Singapore is one of the most expensive cities to live in worldwide. The average Singaporean household strives to keep their costs down, but there is a continuous rise in the prices of property and the cost of health care. Therefore, Singaporeans need to make a plan to make sure that they save for their long-term goals.

Singapore is also a vibrant economy with many dining and entertainment options. The 50-30-20 rule can help you exercise discipline and not overspend.

Religiously Track Your Expenses

tracking your finance

Tracking your expenses allows you to know where your money is going. It also ensures that you stick to your budget.

You can track your monthly expenses using the traditional methods such as writing the expenditure by hand or using an excel sheet. However, it might get messy quickly and can be hard to track. This is why we recommend you use apps that can help automate the work.

The best part about some apps is that they can easily sync with your bank account, which can help you achieve your goals.

Some of the popular budgeting apps in Singapore include:

  • Zenmoney
  • Wally
  • Planer Bee
  • Spendee
  • Spendio
  • YNAB
  • Monny
  • Wallet by BudgetBaker
  • DBS NAV Planner

Refine Your Budget and Repeat Every Month

The final step is to analyze your budget at the end of the month and make necessary changes. You can see if you want to cut back on any expenses or which area you would like to allocate more funds to.

Based on how your budgeting experience goes, you can refine the process as much as possible to get what works best for you and your household.

Conclusion

Budgeting your money is one of the best ways to ensure that your money works for you in the future. Planning and tracking your monthly income and expenditure might be annoying but is essential if you are looking to achieve your financial goals. Most people lose their enthusiasm and lose momentum along the way. Don’t be like them; budget for your hard-earned cash.

Key Takeaways

  • Before budgeting, identify both your long-term and short-term goals
  • Create an actionable plan on how to achieve your goals
  • Differentiate your expenses in terms of the needs and wants
  • Ensure you religiously track your expenses

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