Nothing beats the feeling of elation when you receive your monthly paycheck. But this elation quickly starts to fade once you start paying off your bills.
If you have no idea how much you save or spend monthly – or worse, have barely anything left for extra expenses every month, you need to learn how to budget your paycheck.
What budgeting your paycheck means is: Reviewing your budget every time you get paid. The more you do it, the easier it will get.
It doesn’t matter if you get paid monthly or weekly. If you have never done this before, track you spend on for about two months before you begin budgeting so you’ll have a clearer idea of where your money has been going.
Start with these steps:
1. Calculate your monthly take-home pay
This is the amount you’re left with after the CPF deduction.
2. Get a calendar and write down when various bills are due, and their amounts
Such items are usually fixed costs. Some examples include household expenses, rent/mortgage, utilities, insurance, childcare fees, subscription services, your phone bill, broadband/cable bill, or any minimum payment you need to give for debts (e.g. paying back your student loan).
3. Set aside a fixed amount for variable expenses
Variable expenses change monthly depending on what you do and where you go.
Examples include what you spend on groceries, clothes, personal care (e.g. make-up, haircuts, manicures), food and entertainment (dining out, food delivery, movies), as well as what you spend on to maintain your car (random repairs, petrol, etc).
4. Determine an average amount for your variable expenses
If you are unsure of how much you spend on such costs, check your records and come up with a monthly ballpark average.
5. Put aside some money for an emergency fund
Some expenses are unexpected, and are often needed urgently when emergencies crop up. Ensure you’re not caught by surprise by setting aside a fixed sum reserved for such expenses. If you start saving $100 per month from January, you will have $1,200 by the end of the year.
6. Save some money for irregular expenses
Likewise, save some of your pay every month for one-time or irregular expenses. This is called a sinking fund, which is often used for gifts, vacations, birthdays, weddings, etc.
The goal of this budgeting exercise is to know better what you are spending on, and to have a consistent amount left over monthly that you can save.
Most experts recommend saving at least 20% of your pay every month, but it all depends on your commitments and what you are comfortable with. Get a sense of your spending patterns first before you work out how much to save monthly, and try a few methods to see which one works best for you.
Here are some ways to budget your paycheck:
Colour code your calendar
If you don’t get paid monthly, but weekly, try matching different types of expenses to the various paychecks when they come in. Colour the type of expense and the paycheck you will use to pay it in the same colour so you don’t lose track. Use different colours for the rest.
Download a budgeting template or app
Tweak a budgeting template to your preferences, or use Excel. Or download a budgeting app.
Use cash envelopes
Mark different envelopes as “Groceries”, “Entertainment”, “Beauty”, “Miscellaneous”, and so on. Based on your spending habits, apportion a ratio of your pay to each envelope, and draw your funds from the relevant envelope. This enables you to see when funds for a particular category are running low, or if you are spending too much too quickly.
Follow the 80/20 rule
Simply carve out 20% of your take-home pay for savings. The80% can be spent if needed.
Go by the 50/30/20 rule of thumb
This is a slightly more complex version of the 80/20 rule. It involves reserving 50% of your take-home pay for needs, 30% for wants, and 20% for savings.
With a little practice, finding an effective way to budget your paycheck and grow your savings can be a reality for anybody.
Of course, some emergencies may crop up and put you in a pickle, but fortunately, there are various options available to tide you through these times.
Solutions such as earned wage access and a short-term loan taken up with a responsible lender can provide you with a timely lifeline as you slowly get back on track to improving your financial well-being.
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We know that watching every penny and waiting every day for your paycheck to come in so you can pay off your bills is extremely stressful.
At Friday Finance, we aim to offer you amazing prices, service convenience and financial wellness in the safest and most secure manner.
With interest rates as low as 1% a month, a flexible repayment plan, loan insurance and on-time repayment rewards, taking a personal loan should be a like Friday, a stress-free experience.