Personal Finance 101
Asked 2w ago
Is there a rule you live by to keep your personal finances stable and sustainable?
A rule I live by is to always pay myself first when my salary is in my bank account. During my younger days I squandered alot of money, was ill-disciplined and lacked personal finance know-how. Moving forward, I make sure I always save for rainy days!
I live by my guideline (it's not a strict rule per-se) of 40-30-20-10.
That is to say
40% of my income on expenses, maximum
30% of my income on loans (such as mortgage), maximum
20% of my income on savings/investment, minimum
10% of my income on insurance, maximum
Most of the time, the 30% doesn't exist, which gives me leeway to invest a little more, or save a little more. The guideline is meant to be flexible, but I do keep track and do a little bit of analysis on a yearly basis to see if I've managed to stick to it. Then again, I have done this tracking for over 10 years. For someone who is new to this, it might be good to keep track on a monthly basis until it becomes second nature.
Most important rule is cash outflow <= cash inflows, then do budgets and try to keep within them.
Use automated bank transfers and giro deductions for additional discipline and takes temptation away from the process.
Because the amounts I can spend for each purpose is already determined in my budgets, I make my processes simpler because I only can spend within the budgets.
When overspending happens, I actually have to figure out ways to save or cut some other spend to fill the gap / overspending. Eg I had to cut a few beers and eat more cheaply for two weeks to carve out money to pay angpow for a wedding that I didn't budget for.
Dont sweat the small stuff, focus on the big ones.
Dont scrimp and try to save twenty cents.
When later on you spend two hundred dollars on an item because you just feel like it.
Be prudent with big expense items like high-class restaurants, while you can afford to go generous on cheaper alternatives like hawkers.
I'm the sort who finds it tedious to track down every expense. I downloaded an app for this but gave up within a month, haha. So I have a few saving accounts where I deposit my savings and resolve never to touch the money inside. Then I can just happily spend the leftover money.
Recently, I have been designing processes that will get me to contribute into my SRS account. Like, if I manage to get a $3 handout from Socash, I will just top up $2 and transfer $5 into SRS.** **It's literally $5 here, $20 there but it's a cheap thrill and sustainable for me lar. Haha
I use a two step process.
Firstly, I have a clear understanding on my cashflow, optimising my income while controlling my expenses.
Here is a Guide:
Next, I set a limit on my expenditure via automation.
How I do My Budget:
This process ensures that I do not overspend on something that I do not need.
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Like what Summer mentioned, always track your spendings!
Personally I use an app to input all my expediture (including things that may seem cheap, like a $1 drink)! And if you do so everyday you will see how much you are spending everyday. Sometimes after a week, you will be suprise at how much you have spent within that week!
Look into how you can cut down some expenses. What may seem like a small expense can actually add up to quite a bit!
Ultimately its not all about how much you earn but the lifestyle you have. For some, earning $15000 a month may still be not enough if they lead a lavish lifestyle beyond their means. While for some earning $2k a month may be enough.
Since young, my parents always instil in me to not borrow money unnecssarily. Never borrow to fufil your wants. For example, paying installments for a Channel bag. If you can't afford to pay it in full, do not buy it.
"Save as much as possible and invest in the future."
Something I have learnt throughout the years, albeit a little painfully for my bank account, is the importance of small savings every day. Whether is it that extra $0.20 to dabao food or that one extra cup of KOI on a hot summer day. You should always be conscious of how much you are spending and limit it according to your planned budget.
Investing in the future means always having the end goal in sight. For some people, it may mean getting married and buying a BTO, funding your children's education or early retirement. For me, it means financial freedom. I want to be able to live comfortably in the future without having to worry about money.
My key principle would be long-term planning: save as much as possible and to always invest in things that can increase in value.
Do not underestimate the power of small savings everyday. The compound effect of it when invested will earn you much more than expected! The extra 20 cents you save from using your own cup when buying coffee daily for example goes a long way in the long run :)
Next, investing in things of value. It need not mean money, but also time. Invest your time in gaining more knowledge, whether is it financial knowledge or building up your skill sets. In terms of investing, it would mean looking at the long-term potential of the companies.