Pay Myself First, and More Each Year | MoneyOwl

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Budgeting

Pay Myself First, and More Each Year

01.

What is it?

On payday, we always first transfer $x towards savings, investment, CPF and/or paying down high-interest debt, before paying bills or spending.
Pay ourselves 1% more each year (1% of a higher salary).
Pay ourselves 50% of bonuses.

Why should we do this?

Forces us to spend within what’s left, rather than only save or invest what’s left over.
We build a powerful winning habit towards financial health.
We accumulate a nest egg with compound interest before we know it!

How do we do it?

For monthly income, automate with standing instructions or GIRO to appropriate saving/investment/CPF/debt account.
Pay Yourself First should be used to accumulate a big enough Emergency Fund (in very safe and liquid cash), before investments.
For freelance income, initiate the transfer on day of receiving income.

Example

My payday is on the 12th day of each month. I earn a gross salary of $4,000 and take home $3,200 after CPF contributions.

I set up Standing Instructions and GIRO to deduct monies for saving or investing on the 14th day of the month, after I receive the salary.
- I target to save at least 15% of my gross salary, i.e., 15% x $4,000 = $600/mth.
- I keep my expenses within the remaining $2,600 of my take-home pay.
- I calculate my required Emergency Fund to be 6 months’ of expenses, i.e., 6 x $2,600 = $15,600 .

For the $600/mth of saving, I set up a Standing Instruction to invest into my Save-As-You-Earn account to first build up my emergency fund.
- After I reach my Emergency Fund target, I reset how I Pay Myself First.
- 5% x $4,000 = $200/ mth, I GIRO into my CPF to top up my Special Account (SA).
- 10% x $4,000 = $400/mth , I set up a Standing Instruction to invest into suitable investments.

The next year, I had a salary increase to $4,200.
- I increase my GIRO into CPF and investment both by 1% of my new salary.
- 6% x $4,200 = $252/ mth, is my new GIRO into my Special Account (SA).
- 11% x $4,200 = $462/ mth, is my new Standing Instruction for investments.

Every year, I receive a bonus of $2,000 into my bank account in December.
- I transfer $1000 into my Emergency Fund if I need to top it up.
- Or, if I have enough Emergency Fund, I top up $500 into my CPF SA and do a lump-sum investment of $500 into my investments.

With the remaining $1,000, I plan for something special!

Attention

Automating it and developing the habit is more important than the actual amount.
We can start with a small amount and increase it every year.

Additional Resources

10 Ways to Save and Budget for Your Growing Family

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Full Retirement Sum (FRS) as Base

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Debt Management