Implementing a Personal Budget

Budgeting

What is it?

Using 3 bank accounts for different purposes:

Account 1 (“Operating Account”):
For crediting salary and variable expenses, with a debit (or credit) card
Account 2 (“Pay Myself First Account/s”):
For savings or investments
Account 3 (“Fixed Expense Account”):
For fixed expenses, e.g., income taxes, mortgage payments

Helps us implement our budget – keep variable spending under control while saving/investing – without tedious, detailed expense tracking every month.

At least once a year, do up a budget, identifying fixed expenses and variable expenses.
Click here to download our budgeting worksheet.
Set up the three accounts.
Every month, day after payday, transfer a fixed amount into the Pay Myself First Account by GIRO/Standing Instruction. Set up a deduction for a “Regular Savings Plan” (RSP) into an investment account, if you’ve crossed the Emergency Fund threshold.
Another fixed amount is transferred into the Fixed Expenses Account. From here, GIRO or pay out fixed expenses.
The first Operating Account has the remaining money for variable expenses. Pay all variable expenses out of this, using a debit card (preferably) or a credit card (please pay off in full every month).

My gross monthly salary is $4,000.

My employer credits my take home salary (after CPF deductions) of $3,200 into Bank Account 1 (“Operating Account”).
I have a Standing Instruction to transfer 15% x $4,000 = $600 from Bank Account 1 into Bank Account 2 (“Pay Myself First Account”) to build up my Emergency Fund.
I track my expenses to work out my Fixed Expenses and my Variable Expenses using MoneyOwl’s budget spreadsheet. I keep all Expenses within the remaining $3,200 - $600 = $2,600 of my take-home pay.
I worked out that my Fixed Expenses are $1,300/ mth, I have another Standing Instruction to transfer $1,300 from Bank Account 1 into Bank Account 3 (Fixed Expense Account). I set up GIRO arrangements for each bill I have to pay (tax, insurance, mobile phone etc), with Bank Account 3.
I use Bank Account 1 (“Operating Account”) for Variable Expenses, such as dining out and shopping, keeping within the remaining $1,300. If I use a credit card, I will GIRO the full payment from Bank Account 1.
Once I have built up my Emergency Fund to 6 months’ worth of expenses, i.e., 6 x $2,600 = $15,600, I will change the Standing Instruction for $600/mth to Bank Account 2 into a Standing Instruction into a suitable investment Regular Savings Plan (“RSP”).

Fixed expenses are annual, e.g. insurance premiums.
Split up the annual amount into monthly amounts to be transferred into the Fixed Expense Account.
It’s a one-time set up effort,but be careful not to let things slip in transition.
Choose bank accounts that have no fall-below fees. (Fees charged if your average account balance that month is not above a certain amount.)