Managing your money

How you manage your money can make a big impact on your life.

A good job and a dream income could still be insufficient if we don’t know how to handle our money. The key to being financially secure is not how much money we make, but how well we manage it.

Start by saving first

Saving first and spending later is a good way to increase your savings. It is a commitment to save a fixed amount every time you get paid. You should keep this amount in a separate bank account so that you are not tempted to spend it.

Save first versus spend first

Here’s the difference between the two spending patterns:

Spending pattern	When salary comes in, it goes to:
Save first and spend what’s left.	Savings first, must-pay bills, lifestyle expenses
Spend first and maybe, save later.	Must-pay bills and lifestyle expenses first. Savings, if there’s money left

Saving first ensures that you save a portion of your income every month. Ideally, you should save at least 20% of your income every month. For the rest of your income, use a budget to help you manage your expenses.

Conversely, a spend-first-save-later pattern could mean there is nothing left for savings.

How do you spend?

Before you start tracking your spending, take an honest look at how you spend your money.

Needs versus wants

Needs are the essentials of life. These are things you can’t live without, like food or utilities.

Wants are the things you desire. They could be more expensive (but not necessarily better) substitutes for your needs or just non-essential items, like a new pair of shoes to add to your collection.

As a guideline, always prioritise spending on your needs over your wants: What you want can wait until you have met your goals!

For example, think about something you bought recently:

Do you know how much you spent on it? Was it a need or want? Was it an essential item or was it bought on impulse? Do you usually buy at first sight? Or do you compare prices to see if you’re getting the best deal? You should take steps to curb your spending if it is keeping you from achieving your goals.

A simple way to track your spending is by using a budgeting app. Or you could jot down what you spent, when and how much you paid for it.

Setting a budget

A budget is a good savings and spending plan. It can help you manage your savings, income, spending, debt and other liabilities prudently. Setting up a budget is also a great way to get a quick snapshot of where your money is coming from and going.

Preparing a budget will help you:

Live within your means and meet your basic living expenses
Track your spending, so you can put aside money for your long-term and short-term goals
Control your money, so that it does not end up controlling you

If you have an existing budget, review it from time to time to make sure it still works. If you are new to budgeting, use the Budget Calculator to guide you.

Checklist

Here are a few tips to get you started on preparing a budget:

Work out your total monthly income. Include income you can count on (basic salary, rental income). Do not include any money you are not sure you will earn (e.g. bonuses and commissions).
Set aside a fixed amount of savings every month. Save first: Aim to save at least 20% of your monthly take-home pay, or more if you can. Set aside 3 to 6 times of your monthly expenses as emergency funds. After you have built up emergency savings, save up for the other goals you have in life.
Make a list of all monthly expenses. Include taxes, debts (any credit facility, like loan repayments or credit card balances), transportation, utilities, shopping, food and necessities. If you have children and elderly parents who are dependent on you, include their allowance or financial help. Add in amounts set aside for insurance premiums, investments and savings.
Set up a budget and follow it in a disciplined manner. Expenses may be budgeted but we need not spend it if we don’t need to.
Monitor your budget regularly to see if you are on track. Adjust your budget if, for example, you get a pay rise or get a pay cut or if you have another addition to the family.

If you’re spending too much

Look for ways to reduce your expenses. Here are some ideas:

Change to house brands when shopping for food or essential household items
Opt for the bus or train instead of taxis
Stop buying items you don’t need
Have more home-cooked meals instead of eating out
Review monthly subscriptions that you may no longer need