Set a personal rule that splits any pay rise between saving and spending.
Decide how you will split a pay rise before the extra money reaches your account, and use the same split every time your pay goes up. That decision is your raise rule: you make it once, in advance, and it splits every pay rise between saving, goals and spending.
Lesson 7.1, "Lifestyle creep happens one reasonable upgrade at a time", explains why the timing matters. Extra monthly money gets absorbed into daily life within weeks. Once that has happened, cutting back feels like a loss, even though you managed without the money a month earlier. If you decide before the money arrives, you never get used to spending all of it, so there is nothing to give up later. A raise can also cause lifestyle creep faster than the gradual creep that happens without one. A raise rule lets you enjoy part of the raise without guilt, because the spending share is meant to be spent.
At her year-end review, Hui Min's manager tells her that her pay will rise by S$300 a month from April (an example figure). She is pleased. By the time she is back at her desk she has already spent it three ways in her head: a nicer phone, more meals out, maybe a weekend in Bangkok. None of these is a bad idea. Then she remembers watching Arjun's spending creep up for a year without any raise at all, and she realises a raise could do the same to her faster.
The raise in your employment contract is a gross figure, which means it is the amount before employee CPF is deducted. Lesson 2.1 showed that employee CPF comes off gross pay, so your take-home pay rises by less than the raise. Your employer's CPF contribution also rises. That is a real gain, but you can't split it, so leave it out. Your raise rule applies only to the increase in take-home pay.
Hui Min works out that S$60 of her raise goes to CPF. Her take-home increase is S$300 - S$60 = S$240 a month.
There is no correct split. Yours should reflect what you want your money to do. Common splits put at least half towards saving and goals and the rest towards spending. The right shares for you depend on what your first-year review showed. It helps to rank your priorities in order, for example saving first, family commitments second and spending third. Make the spending share big enough that you notice the raise. If clean figures make your transfers easier, round to them.
Hui Min ranks hers. Saving comes first, because her emergency fund has not reached its target and she wants to start investing once it has. Her parents come second, because in Lesson 4.2, "Decide what to give your parents and say it out loud", she told her mother she would review the allowance when her pay changed. Spending comes third, and she wants that share big enough to notice.
She sets her split at 50% saving, 20% parents' allowance and 30% spending. On S$240 that gives:
50% of S$240 = S$120 more to savings each month 20% of S$240 = S$48 more to her parents, which she rounds up to S$50, so her mother's allowance goes from S$400 to S$450 30% of S$240 = S$72 more to spend
Bonuses and the AWS arrive as one large sum, so they are where lifestyle creep can do the most damage in a single day. Treat them like a raise, with one change: set aside a share for a one-off treat first, then put the rest towards goals and savings. Because the treat is written into the rule, you can enjoy it without feeling you broke the rule, and the rest of the money still goes to your goals and savings.
Hui Min's bonus rule is 20% for a treat, then S$1,000 to her study loan this year, as she planned in Lesson 5.4, and the rest to savings. In Lesson 2.3 her AWS came to S$3,200 after CPF. 20% of S$3,200 is S$640, which pays for a trip to Taipei. S$1,000 goes to the study loan. The remaining S$3,200 - S$640 - S$1,000 = S$1,560 goes to her emergency fund. She enjoys the trip without feeling she broke her rule.
A rule only works if the money actually moves. The simplest way to move it is to update the automatic payday transfers you set up in Lesson 4.4. Do it on the day the raise takes effect, before the first larger salary arrives. Leave the spending share in your everyday account. If you put off the update, the extra pay gets spent without you ever deciding to spend it.
In April, Hui Min changes two transfers. Her buffer transfer goes from S$400 to S$520, which is S$120 more. Her transfer to her mother goes from S$400 to S$450, which is S$50 more. S$70 stays in her everyday account to spend, not S$72, because she rounded the allowance up. The changes take her about five minutes. If she had waited until June, two months of extra pay, for April and May, would already have been spent without her deciding to spend it.
Your own rule fits in one sentence, and the best time to write it is now, while your next raise is still only a possibility.
Write your raise rule in one sentence, giving the percentage for saving and for spending, then set a reminder for your next review date.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).