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Introduction
When it comes to adulting, budgeting is easily one of the biggest headaches encountered by everyone very early on. Not knowing whether current funds are sufficient to last until the end of the month before the next paycheck rolls in is enough to send anxiety and stress levels skyrocketing. However, this is a reality of many Singaporeans as they try to make ends meet. From household expenses, like tariff to daily expenses, budgeting is essential to ensure that there are sufficient funds at the end of the month available for other expenses.
Surviving; barely living
Notwithstanding those experiencing financial burdens arising from unforeseeable or uncontrollable circumstances, many Singaporeans generally experience trouble managing their finances due to one simple reason — a major oversight of their expenditure habits. They don’t have good budgeting practices to help control their spending according to necessities such as groceries, transport, healthcare, education, and utilities. Regardless of whichever camp one falls under, the outcome is still the same. How might one go about addressing and resolving these problems then?
1. Awareness and acknowledgment are the first steps
The first step to resolving any issue is to acknowledge it. Those in denial would never be able to fully address a problem because they’re either too blinded by naivety or ignorance. Hence, this same principle applies to handling finances where one needs to be completely transparent of their current expenses by tracking it in a notebook or excel sheet.
Identify what’s the main mode of payment and types of purchases mostly made. As Singaporeans go about their hectic day-to-day lives, they become unphased or desensitized by the amount their purchases potentially accumulate, especially if they’re operating on autopilot. Additionally, as payment trends become increasingly cashless, many consumers are opting for debit/credit cards and in-app payment modes rather than using physical cash. Consequently, downloading a money wallet app to track such expenses is highly beneficial for those with such spending practices.
Once that’s settled, it’s time to address the two most dominant categories under daily expenses: essentials and good-to-have expenses.
Essentials comprise the immediate expenses such as transport, groceries, insurance schemes, utility bills, monthly repayments (car loans, student loans, etc.), and residential payments. These are unavoidable and urgent expenditures that require immediate attention when presented.
On the other hand, good-to-have expenses entail relatively less urgent concerns such as digital subscriptions (Netflix, Spotify, etc.), shopping, and outside dining. Although these are valuable assets that contribute to a greater quality of living, they’re not a matter of life and death. It’s completely possible to live without them for an indefinite period of time.
2. Prioritizing essential items: Automation
Once the list of essentials is identified and isolated, the next appropriate step to take would be to automate payments for these essential expenses. This eliminates any chances of mistaking good-to-haves as essentials, sieving out unnecessary spending from daily expenses. Be prepared for all the non-essential grab rides and food delivery orders to be exposed through this process. Indeed, this is a necessary evil to identify and subsequently purge out all the toxic spending habits.
Although it might be a harsh truth to face, it’s said that a bad habit takes 30 days to relinquish and likewise, develop a new habit. Hence, the initial challenge of kicking the habit will be well rewarded if one is disciplined and persistent in transforming habits. However, this isn’t to say that such purchases are completely banned. Indulging in them from time to time is perfectly acceptable.
3. Every battle needs a good strategy — so does your budgeting
Depending on the individual’s personality and lifestyle, the budgeting tactic will vary.
(a) 50/30/20 budgeting system
This tactic is broken down into 50% needs, 30% desires, and 20% financial goals. The simplicity of these three categories makes budgeting straightforward and manageable. According to this system, individuals are permitted to use their expenses however they please as long as it aligns within these margins. Therefore, if an individual has a monthly income of $3,000, the expenditure components would be broken down into $1,500 for essentials, $900 for miscellaneous purchases, and $600 for savings or investments.
Individuals can also alter the percentages to better fit personal preferences. The primary objective of this system is to ensure that one’s bank account never falls in the red. Once again, the automation function is encouraged for maintaining the essentials and financial goal components of this system. Lastly, opting for a digital wallet like GrabPay is also highly viable given their cashback, air mile, promotions, or reward systems.
(b) Reverse budgeting: Save first, Spend later
Despite what the name suggests, this system isn’t a complete reversal from the 50/30/20 system. In fact, it follows a similar saving principle. The biggest difference between the two is that 50/30/20 practices payment of essentials on payday itself whereas reverse budgeting removes percentages from the equation and instead focuses on allocating an explicit amount required for savings while allowing some budget for flexible spending.
Financial decisions encompass anywhere from savings, investments to expenditure. Subsequently for every item recorded, the payment mode (GIRO, credit card, automated savings, bank/i-banking) and its corresponding amount should also be noted. Once the total is tallied, it becomes apparent what components demand significant chunks of one’s budget. Differentiating between different modes of payments is also a strength of this tactic to ensure that the individual doesn’t get confused over where money is being drawn from for each payment.
Despite what the name suggests, this system isn’t a complete reversal from the 50/30/20 system. In fact, it follows a similar saving principle. The biggest difference between the two is that 50/30/20 practices payment of essentials on payday itself whereas reverse budgeting removes percentages from the equation and instead focuses on allocating an explicit amount required for savings while allowing some budget for flexible spending.
Financial decisions encompass anywhere from savings, investments to expenditure. Subsequently for every item recorded, the payment mode (GIRO, credit card, automated savings, bank/i-banking) and its corresponding amount should also be noted. Once the total is tallied, it becomes apparent what components demand significant chunks of one’s budget. Differentiating between payment modes is particularly useful in order to ensure that the individual doesn’t get confused over where the money is being drawn from for each payment.
(c) Cash envelopes
Last but not least, for those not sensitive to numbers are usually most susceptible to irresponsible overspending through cashless payments. Sometimes desperate times call for desperate measures. In fact, the best solutions are often to quit cold turkey.
Hence, forgoing cashless payments might be beneficial for such people in the long run since they’re not privy to each individual expenditure. By switching to cash envelopes itself, it forces them to be aware and conscious of their present funds by resorting back to cold hard cash.
Forcibly relying on physical cash to manage finances reduces the chances of incurring credit card debts and provides a tangible sense of one’s spending, either weekly or monthly depending on how frequently they withdraw money.
Conclusion
At the end of the day, budgeting is a highly personal experience and everyone has their preferences. Just because one method works for someone, does not necessarily guarantee its effectiveness with another person. Thus, finding a suitable budgeting tactic relies heavily on trial and error. It mandates the individual to undergo a reality check of their expenditure habits and consequently, confront and resolve any prevalent financial misdemeanors.
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