I have been keeping budget for just over a year now. I have tried many different methods of keeping a budget. All have some pros and some cons. Today I am going to discuss how I solved one of the problems.
After you have decided this much you are going to save and this much you are going to spend in the coming month, what happens to the salary that comes to your account. It still sits there all together. In theory, you have an allocation but not in the account. You did follow the budget but then all the emergency funds and savings sit together and tight like a family in that one account. And then to add to the worries the next month's salary comes and we are just a couple of months away from complete chaos. I'm sure this happened to many of you. In fact, often on discussion with friends who are saving up money I have found they have thousands of dollars just lying there in the account for months. How does one manage this problem? The solution is quite simple.
This is what I did. I opened two new Savings Account connected with the already existing salary account. This is very easy to do online nowadays and usually there aren't any additional charges associated with it. The first savings account is for investment funds. My plan is to invest SGD 1k/week and if I don't separate out the funds to take this 1k from my salary account has lots of transactions to keep track of at the end of the month. And it is harder to keep track of whether I was able to invest SGD 1000 every week or not. Instead I'm going to transfer SGD 3k each month to my 'Investment Funds' account and then I use this money to make all the stock purchases. This makes it much simpler to track and also to implement the age old saying of 'pay yourself first'. As soon as the paycheck comes now, I'm going to transfer this amount. You must be wondering how I'm only transferring SGD 3k/month to spend SGD 1k/week. Actually I have some buffer in investment funds right now which will be slowly used. I'm also hoping for a salary hike in April after which I should be able to save SGD 4k/month for investments.
The second savings account is for emergencies, so I'll call it the 'Emergency Fund'. Currently I have 2 months worth of expenses in this account and I'm not going to touch this unless it's an absolute emergency like losing my job. I do want to supplement this account each month with some more cash to have a bigger emergency fund over time. I can survive on SGD 3k/month, so this account has SGD 6k at the moment.
Ideally I want to have one more savings account 'Big Ticket Fund'. This will be to help me save up for the big ticket purchases including any home appliances, travel tickets, etc. My budget is SGD 3k/month. So, everything that remains from this 3k allocation will be transferred to my 'Big Ticket Fund' account each month on the day of payroll. Over a period of time this would grow and I plan to purchase stuff without any debt.
To summarize, open three more savings accounts connected with the salary account. When the salary comes, transfer all the left over money from last month's budget to 'Big Ticket Fund' account. Now your account will have only amount equal to this month's salary. Transfer investment money to 'Investment Fund' account ("Pay yourself First"). Then transfer a fixed amount into 'Emergency Fund'. Use the remaining money for monthly expenses.
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