Learn how to budget in your 20s
If you’ve only got a minute:
- Saving before you spend and tracking your monthly expenses will go a long way to help you cut back on your spending and save more.
- Be more conscious of your spending as daily indulgences and irrational spending can easily consume a large part of your monthly budget.
- Credit cards can get you more out of your spending by offering miles or cashback if used responsibly.
Your 20s are the most important decade of your life. During this exciting phase, you are likely to experience many changes, including building a successful career, expanding your social circle and for some, getting married and having children.
With so many things happening along the way, how do you balance between achieving your goals and having fun?
To master your own life, start by honing your budgeting skills. It can help you stretch your hard-earned dollars so that you can channel your money into what matters most – achieving your financial goals sooner.
Take it from Warren Buffett: save before you spend
Cultivate a habit of saving. Try setting aside at least 10% to 25% of your monthly take-home income. Ultimately you should decide what ratio works best for you based on your goals and lifestyle needs. Then you won’t need to dip into your savings regularly to make up for shortfalls.
Another tip is to keep your savings in a separate account, away from your spending account. Money that’s kept out of sight is kept out of mind.
List your monthly expenses, down to the last cent
Track your monthly expenses over time for a better picture of your spending habits and patterns. That way, you will know exactly where your money is going, and what you should be cutting back on, if necessary. You may also find expense tracking apps useful when doing your monthly budgeting.
Be conscious of your fixed and variable expenses
Knowing how your money is spent gives you a better idea of your different expenses. It may even help you to trim your annual expenses by hundreds, if not thousands, of dollars.
Although fixed expenses like rent, phone bills and monthly payments for a car loan cannot be reduced in the short term, being mindful of them can help you make a conscious effort to cut down on other expenses.
If you are not conscientious with your tracking, an expensive dinner or a new branded bag can easily cause your monthly expenses to spike up.
Sum up your daily small indulgences
As insignificant as they seem, small expenses like a daily cup of artisanal coffee can add up over the course of time. This money could be directed towards more meaningful things, such as paying off a credit card bill or achieving your savings goal. But it doesn’t mean that you need to give up your regular caffeine hit or small treats. Instead, you can explore cheaper alternatives like simplifying your Starbucks order, or grabbing a Kopi from the hawker centre.
Unfollow and unsubscribe from irrational spending
The rule of ‘out of sight, out of mind’ works well here too! It’s all too easy to rationalise your next buy when you are constantly bombarded by the latest trends and promotional messages online. By scrubbing your social media clean of these enticing images, you are less likely to make impulsive and unnecessary purchases.
Another step you can take is to not link any payment methods to your shopping app to make it slightly less convenient to click and pay on impulses.
Make your credit card work smarter for you
Credit cards do not have to be a gateway to debt. It may sound counterintuitive but credit cards also allow you to utilise offerings such as substantial discounts, reward points and cash rebates.
Choose credit cards that best suit your lifestyle needs so that you can enjoy better mileage for every dollar spent. What’s more, if you consolidate your spending on one or two cards, you can accumulate your points and rebates faster.
That said, do remember to pay your credit balances on time to prevent racking up on late payment charges and massive interest over time.
Reduce unsecured debt through a Debt Consolidation Plan
The inability to repay loans and the corresponding accumulation of interest charges can be a constant source of distress.
If you have been racking up credit card bills or have taken up personal loans with Balance-To-Income ratio more than 12 times, consider consolidating these debts into a single loan plan by taking up a Debt Consolidation Plan (DCP).
A DCP helps to consolidate outstanding loans/balances you currently have with different financial institutions into one loan plan which typically charges an effective interest rate (EIR) of 8.22% each year. You can apply for a DCP with just one bank and you can concentrate on paying off just one loan.
Always have a contingency plan
If you are diligent with your savings, you may already have a comfortable sum to pursue your life goals, such as taking a sabbatical or buying your first car. But what if the unexpected happens, like a medical emergency or an unforeseen lump-sum expense?
Make sure you have sufficient money set aside for rainy days. It is recommended to have at least 3-6 months of emergency cash savings. You might not be able to predict when you need it, but having money on hand ensures that you can handle any contingencies.
At the end of the day, treat yourself
Budgeting sounds boring and restrictive, doesn’t it? You may feel deprived of the freedom to spend as and when you like. But let’s not take the fun out of living.
Even with all that budgeting going on, you can put aside small amounts of money for occasional treats or save towards a bigger reward like a dream holiday. When you know you have budgeted for the splurge, you will feel less guilty about putting your planning on hold for the occasional indulgences.
Have more money-related questions?
Book an appointment for a private one-on-one session with our Wealth Planning Manager to have your financial queries addressed. In the meantime, stay tuned for the next article to find out more about how you can be a master of personal finance.
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