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Budgeting

Bullionstar

Bullionstar

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When it comes to personal finance, budgeting is an important element. Yet I observed that many young Singaporean working adults fail to understand the importance of budgeting and how to practice it in an effective manner.

This is not surprising as most students were not taught about how to manage money in schools and at home, most parents also seldom discuss household budgets with their children. As Asian, we also find it taboo to talk about money issues during social meetings. All these factors reinforce the notion that budgeting is not relevant to successful personal finance, which is totally untrue.

Many people thought that budgeting is all about counting beans and tracking your daily expenses. But I beg to differ. Sure, there are means and various mobile apps designed to track your daily expenses but I find that managing personal finance at such micro-level would take the kick out of living a meaningful life.

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Just imaging this: having to think twice about buying or treating your good pal that cuppa of Starbuck coffee. Or how about skipping a close colleague just to save that ang pow money? Money is important but we should not let it rules our lives and stresses us out. Conversely, we must manage it to make our life meaningful. So a good budget is about managing your personal monthly cash-flow to ensure that your living expenses, savings, investment plans and retirement needs are catered for.

Separate bank accounts for savings and expenses
I have a few bank accounts to manage my budget. The expense account is the one in which my salary is credited to. Every month, fixed expenses such as car loan installments, parking fees, insurance premiums, handphone bills and utilities bills, income tax (I pay by installments) would be deducted from this account.

Pay yourself first
Every month on my pay-day, 20% of my take-home pay would be electronically transferred to another bank account. This is my saving account which consists of my Emergency Fund, Retirement Fund and Opportunity Fund. To cultivate a good saving habit, young working adults should adopt a “pay yourself first” mentality as this is a sort of enforced saving plan.

Many people started their career thinking that in order to build up a credible saving, the best way is to pay off monthly expenses or credit card debts first and save the remaining income. While this is not a wrong thinking, but in doing so, saving would subconsciously become a second priority and takes a backseat. And in this day and age, with so many material temptations, it is very likely that you would overspend and not have any remaining saving at the end of the month.So this thinking is not practical, in my opinion.

Credit cards
I am a great fan of credit cards but I think credit card companies would dislike people like me. This is because I pay my credit card bills on time every month and had never incur any late charges before. In addition, I always read the statements and call to waive off the annual membership fees without fail.

Another reason why I love credit cards is because they allow me to track my monthly expenses and allows me to stagger my bill payments (normally every credit card has grace period of 3 – 4 weeks to settle the outstanding amount). Therefore if for a particular month, after “paying myself first”, I found that I have overspent, I would stagger the bill to next month before the deadline. Normally I draw $100 in cash from the ATM every week for daily meals. Going plastic allows me to have a good sense of my monthly expenses without counting beans on a daily basis.

The above techniques are used by me for budgeting purposes. I am sure there are other different ways which work for others. Feel free to share any best practices for budgeting in this blog, SG Wealth Builder!Join me in my investment journey and read my financial adventures for free! You can opt to subscribe email updates on my articles for free by entering your email address below.

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