How to Manage Your Monthly Budget

Money management skill is an often overlooked basic life skill that everyone should acquire. Financial stress can seriously impact a person's physical and mental well-being. Taken to the extreme, money mismanagement can potentially lead a person into ballooning debt. So it is important to take charge of your money matters and keep yourself firmly in control. Rest assured even if you do not have a knack for numbers, money management is not complicated at all. Just follow the basic steps outlined below.

Step 1: Take Note of your Monthly Income and Pay Day

If you have full-time or part-time jobs, take note of the various salary credit dates. Remember to deduct CPF contribution and other deductibles made by your employer as you are looking at your net disposable income. Include other income sources, eg rental income, insurance payouts, annuities, CPF payouts if applicable.

Step 2: List Out your Monthly Expenses

Make a list of your monthly expenses in a typical month, excluding payments made through your CPF, eg portion of mortgage that is paid through CPF. It is probably easiest to start with the regular expenses that you have to pay for every month. For expenses that are not incurred monthly, estimate how much you have to pay for this cost item in a year, then divide the amount over 12 months. You will then have an idea of how much you have to set aside for this cost item monthly in order to have sufficient cash to pay for it when it is due.

Step 3: Categorize your Monthly Expenses into Group Headings

Group your monthly expenses into useful headings. Go through those headings to think through whether you have missed out any cost item within the heading.

Housing - mortgage, rent, property tax, property insurance, maintenance fee, town council charge, utilities, telecommunication.

Transport - vehicle loan instalment, petrol, parking, road toll, road tax, vehicle insurance, vehicle repair, public transport.

Work - meals at workplace, income tax, CPF contribution for self-employed persons.

Family - housekeeping, grocery, clothing, footwear, medical, education, pocket allowance.

Others - personal insurance, tobacco, alcohol, recreation, gifts, donation, other loan payments.

Step 4: Consider which of your Monthly Expenses are Needs or Wants

Separating your needs from wants can help you to differentiate between the basic necessities and luxury / pampering. It is probably prudent to give priority to the basic necessities. If you are cash-strapped, consider whether to reduce or defer or eliminate some of the luxury / pampering.

Step 5: Deduct Monthly Expenses from Monthly Income to arrive at Surplus or Deficit

If you have monthly surplus, this should go into savings or investment. This will build up your future source of funds during your retirement years. If you have monthly deficit, this means that you are eating into your savings or investment, or worse, borrowing to make ends meet. Think about whether this is sustainable. Ideally, we should aim to have mainly monthly surplus during our working years so that we can fund our monthly deficit during our retirement years.

In summary, plan out your finances during your younger years. Your future self will thank you for it. Money is not the root for happiness. But getting money problems out of the way can then allow you to enjoy life to the fullest.