It's not easy to be the single breadwinner in a household. Paying the monthly bills for an entire family could cause both emotional and financial turmoil.
We all know how difficult it is to be the primary earner in a family, ensuring that everyone has a safe place to live, enough food on the table, and adequate money to enhance their living conditions.
The truth is that many one-income households are unable to make ends meet, while others are only just able to get by. Nonetheless, most families in Singapore enjoy a high standard of living. They can make withdrawals and make purchases without worrying about going over budget.
If your family has only one income source, it might be challenging to cover basic living expenses like rent or a mortgage, school fees for your children, food, and clothing. You may have to cut back on your savings or reorder your priorities elsewhere just to make ends meet.
However, being aware of the resources available to you and following this practical advice can have a substantial impact on your finances. To assist you in keeping your single-income household afloat, here are five money budgeting tips for you.
1. Set achievable financial goals
After deciding how much money you want to make, the next step is to create specific, measurable, and achievable goals. No actionable plan can be made without establishing a clear goal first.
You can’t expect to have a large sum of money sitting in your bank account each month without making financial goals that are sustainable and achievable to work your way up there.
On the other hand, having a specific financial goal in mind makes it easier for you to stick to a budget and build the savings that you want.
But first, you must know the difference between a “realistic” and a “pipe dream” when it comes to your financial plans.
If your goal is to “become a millionaire” or “get instantly rich,” then that’s also the same thing as promising yourself to lose 200 pounds overnight.
Aspiring to be rich is not the same as wanting to have a net worth of at least S$1,000,000 by the age of 30. Or perhaps, you want to buy a 5-bedroom resale flat, however, you just want to allocate S$200k worth of budget for a new apartment search. Thus, it requires a different benchmark.
What You Need To Do:
Having goals that are more concrete and achievable makes them less daunting and increases the likelihood that you won’t take drastic measures to attain them.
Instead of simply stating your aspiration to be wealthy, you should instead calculate the precise sum you’ll require.
Here are some examples of goals that are too vague and how they could be refined into more specific and achievable goals.
If your goals are hard figures then you’ll need to calculate them. With concrete figures to work with, you’ll know how much effort is required of you to reach your goals.
You need to make them as specific as possible to determine if you can achieve your goals.
The majority of Singaporeans wish they could stop working at the age of 30. However, after figuring out how much money you’ll need to save and invest for you to achieve it, you’ll probably realize that barring a lucky strike from Toto is definitely what you need, or else you’ll have to come up with a more practical timeline.
2. Splitting income into different categories
Knowing what you want to accomplish financially will help you divide up your one source of money into manageable chunks.
As a child, your parents presumably opened a single bank account for you. However, once you’re an adult, it’s wise to open multiple savings accounts so that you can divide your income into different buckets; and not just any savings account, but one that pays a high-interest rate and has access to sufficient funds in the event of an emergency.
Once you have determined your long-term financial objectives, you should start to open more bank accounts. By doing so, It allows you to manage the money set aside for various purposes in separate accounts.
Some of the accounts you might want to keep open are as follows:
First account: Daily expenditure. preferably one with access to convenient ATMs. This is also the account where you’ll most likely pay your bills.
Second account: a monthly paycheck. Directly deposit the savings portion of your paycheck into this account as soon as you receive it. This process can be automated by setting up a standing instruction to move a set amount of money from one account to another every month.
Third Account: Different savings goals. Saving Putting away money for a rainy day? Saving for a new car? In order for you to better track your progress, you can create separate accounts for each.
3. Don’t spend half of your savings on basic needs
Everyone has a different perception of what a reasonable proportion of one’s wage should be spent on luxuries and what should be put away for emergencies. While It’s possible to save 100 % of your monthly salary if you work extremely hard and live like a saint, it’s just not realistic for most of us.
As a rule of thumb, it is recommended for people with average income like us, to spend no more than half of our monthly earnings on basic living expenses.
When we say “income,” we mean “net income” after CPF payments have been deducted. Therefore, if your take-home pay each month is $9,100 after CPF deductions from a $10,000 monthly wage, you should spend no more than $4,550(50% x $9,100) on needs.
How do you choose a necessity? Make sure to only add things that can’t be crossed off the list, no matter how much you want to exclude them.
Unless you’ve figured out how to build your own farm and plant different crops in your backyard, you’ll need to shop for groceries regularly. But it’s not necessary to dine in a 5-star hotel every month.
School expenses for your children are an absolute necessity. However, including their wants, such as iPads, PlayStations, and baseball bats are not part of the needs.
And because we know that some people will insist that weekly party booze is essential to their mental health, we have prepared a list to assist you to understand the difference between needs and wants.
Spending no more than half of your monthly take-home pay on basics leaves you with twice as much money for discretionary purchases, savings, and investments.
4. You should not spend more than 20% of your income on things like recreation, shopping, and other wants
Try to recall the wants and needs list we made earlier.
Keeping your spending on necessities to no more than half of your salary will leave you with enough money to indulge in 20% of your income’s worth of wants and pleasures.
It doesn’t matter whether you want to spend money on expensive stuff like Starbucks, fine wine, luxury purses, 5-star hotels, or antique kinds of furniture. If you keep your monthly spending to no more than 20% of your income, you can buy whatever you want without feeling guilty.
Keep in mind that this calculation should reflect your net income after CPF withholdings, rather than getting the figure without the deductions.
If you make $10,000 per month but only keep $9,100 after deducting your CPF, you have $1,820 to spend on wants each month.
Imagine you want to take a vacation to France, which gives you a rough estimate of $8,000 to get there. However, you only bring home $9,100 each month and have $1,820 available for your wants.
Therefore, you’ll need to make sacrifices and cut back your spending on wants for a certain period in order to save up enough money to spend $8,000 in this way without having to touch the funds you’ve set aside for other uses.
5. Put the remaining 30 percent into long-term investments and savings
Now, you have spent no more than half of your salary on needs and no more than twenty percent on wants.
The remaining 30% of your net monthly income is yours to spend as you like.
This amount is best put toward long-term goals like saving and investing.
Keep in mind that this budget section is also the most crucial to your overall financial well-being, so be sure to be consistent and reliable with this allocation of funds over a lengthy period.
But there’s more. You won’t just put all 30% of it into a savings account and forget about it.
You’ll have to divide the amount into the following three parts:
- 10% allotted to emergency
- 10% allotted to insurance
- 10% allotted to investment
What you need to do:
Put this money into a savings account for the future. You should save enough for rainy days until you have a comfortable cushion.
This fund is to be used for emergencies such as medical bills, losing your job, or for replacing your broken appliances.
You should base the amount of this fund on your own financial security.
If you have the kind of employment that’s reliable to provide all your needs and you never have any trouble staying within your monthly budget, then you probably don’t need to worry about building up an emergency fund that’s worth more than three months of your salary.
If your income is unpredictable (for example, if you’re a freelancer, private tutor, real estate/insurance agent, or work in a delivery company), it’s a good idea to save up at least six months’ worth of living expenses in case of emergency.
Once you’ve amassed a sizable rainy-day fund, you may put that extra 10% toward long-term goals like retirement and protection.
Working adults should prioritize health insurance, especially, In the event of a major illness, the cost might quickly add up, and you may not want to rely solely on public hospitals. If your illness requires hospitalization, your health insurance should cover the costs of your doctor visits, procedures, and medications.
Medisave-compatible Integrated Shield Plans are the most widely held form of medical coverage. These are supplements to your existing MediShield Life plan in which you can use the funds in the CPF Medisave account to pay a part of it.
On the other hand, having dependents such as children or elderly parents makes life insurance an absolute necessity. In the event of your death, or should you become incapacitated and unable to work, your dependents may receive a payout from your life insurance policy which may help them survive once you’re no longer there.
Some people choose to mix life insurance with investments by purchasing investment-linked life insurance plans, but you have to make sure that you’ve researched well before choosing whether it’s the right option for you or not.
After you’ve had these two important forms of insurance taken care of, and you still have money left over, you might look into getting insurance for things like critical illness or personal accidents. You may check this article to know more about the other types of insurance you may need.
Instead of only saving for retirement and other long-term financial goals, it’s wiser to invest so that your money can increase over time and provide you with more security.
Stocks, ETFs, real estate, unit trusts, and even Singapore Savings Bonds and fixed deposits are just some of the many investment vehicles available to you.
The earlier you begin investing, even with a small amount, the better off you will be in the long run. Due to the power of compound interest, your investment will expand exponentially over time.
Don’t delay investing because you don’t think you have enough money saved. If you’re nervous about making a large initial investment, a robo adviser can help you get into the market with a low entry point.
Now, you may be wondering, “What about cryptocurrency?” This is a risky way to put money to work; perhaps the word speculating is more apt. Even though it has the potential to yield substantial profits in a short period of time, crypto is a very risky investment. So here’s a helpful guide for you.
Final Notes:
If you are able to stick to the above budget, you will likely be meeting or exceeding the expectations of most financial planners.
The 50-20-30 budgeting guideline is a common framework for dividing up one’s income and spending between requirements, wants, investments and insurance.
Of course, this all depends on whether you’re willing and able to live on less than half of your income for essentials, less than twenty percent for wants, and more than thirty percent for savings, investments, and insurance.
This will put you in even better financial shape than those who strictly adhere to the 50-20-30 rule.
Let’s say perhaps that you can get by spending only 30% on essentials and 10% on wants while putting 60% into savings, investments, and insurance.
This implies that you’re able to meet those financial goals we discussed at the start of this article much earlier. You’ve beaten the curve!