Step 3: Plan your budget
Now that you’ve clarified your short term and long term needs and wants, have a look at your worksheet again and figure out what your new budget will look like after you’ve cut out the expenses you don’t need and included the expenses you do need.
For example, you may decide that you don’t want to drive to work anymore, so you can significantly reduce your petrol costs in your worksheet. You may decide that you would like to pay off all your credit card debts first, and budget a higher amount for that in your worksheet. Reconsider your subscriptions like Netflix or Spotify – do you really need them? Or try switching to a family plan and sharing the subscription fees with others to reduce the cost of these items.
Here are some guides to help you through this process:
Prioritise paying off credit card debt first
Don’t even talk about savings or bill payments if you have outstanding credit card debt. Credit card interest is incredibly high, and you can wind up paying 1/3 to 3 times more the cost of something if you leave it unpaid for a few years. You should try to pay this off as soon as possible!
Budget to settle immediate dues from other loans
Paying off your other commitments regularly will help you maintain a good credit score, which will reduce your interest costs. Pay off these loans at a steady pace so you can also save a bit of money each month.
Aim to have at least 6 months of your salary in emergency funds
Don’t forget that nothing is a given in life. At any point, you may lose your job, or fall ill and become unable to work. There may also be sudden repairs required for your home or your car.
The best way to build up an emergency fund is to create a separate bank account and automatically transfer a portion of your monthly salary into the account as your savings for emergencies. You don’t have to allocate a significant amount, but you should keep this account separate from your other savings, and don’t touch it!
Knowing that you have a stash of emergency funds that is growing is a very comforting feeling.
Save as much as you can for your retirement and be sure to invest in something secure and inflation-proof
It’s a good idea to make voluntary contributions to EPF if you already have enough funds to cover emergency expenses and other short-term needs. Why? Because EPF guarantees a minimum return, is well-diversified, and produces satisfactory returns that will help to ensure that inflation won’t eat away at your money in the long run!
Allocate 10% of salary for wants
It helps to put a cap on unnecessary expenses. This way you’ll have some money for fun and you will still feel good about yourself because you are exercising control over your expenses.
Make sure you have life insurance if you have dependents
Life insurance is not necessary if you don’t have anyone dependent on your income to survive. IF you do, then it is essential. Should anything happen to you, the insurance policy will ensure that your family is covered with a payout that will help them make ends meet when you are gone.