Key Takeaways
Basic money management skills are essential for a healthy money mindset
Prioritise what you need to spend on and save for your long- and short-termgoals
What is the first thing you do when you receive your pay? Do you keeptrack of where your money goes every month?
A good job and a dream income could still be insufficient if we don’tknow how to handle our money. The key to being financially secure is nothow 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. Youshould keep this amount in a separate bank account so that you are nottempted 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. |
|
Spend first and maybe, save later. |
|
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 therest of your income, use a budget to help you manage your expenses.
Conversely, a spend-first-save-later pattern could mean there is nothingleft for savings.
How Do You Spend?
A simple way to track your spending is by using a budgeting app. Or youcould jot down what you spent, when and how much you paid for it.
Before you start tracking your spending, take an honest look at how youspend your money.
Needs versus wants
Needs are the essentials of life. These are things youcan’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-essentialitems, 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 wasit bought on impulse?
Do you usually buy at first sight? Or do you compare pricesto see if you're getting the best deal?
You should take steps to curb your spending if it is keeping you fromachieving your goals.
Setting A Budget
A budget is a good savings and spending plan. It can helpyou 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 whereyour 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 andshort-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 sureit still works.
How To Prepare A Budget
Here are a few tips to get you started:
Work out your total monthly income. Include income youcan count on (basic salary, rental income). Do not include any money youare not sure you will earn (e.g. bonuses and commissions).
Set aside a fixed amount of savings every month. Savefirst: Aim to save at least 20% of your monthly take-home pay, or moreif you can. Set aside 3 to 6 times of your monthly expenses as emergencyfunds. After you have built up emergency savings, save up for the othergoals 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 elderlyparents who are dependent on you, include their allowance or financialhelp. Add in amounts set aside for insurance premiums, investments andsavings.
Set up a budget and follow it in a disciplined manner. Expensesmay 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 cutor if you have another addition to the family.
If You Are 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
