You will be able to set a personal rule that splits any pay rise between saving and spending.
At her year-end review, Hui Min's manager tells her that her pay will go up by S$300 a month from April. She is pleased, and by the time she reaches her desk she has already spent it in her head three ways: a nicer phone, more meals out, maybe a weekend in Bangkok. None of those is a bad idea. But she has just watched Arjun's spending creep up for a year without a raise, and she can see how a raise would do the same thing faster.
This lesson gives you a way to decide where a raise goes before it arrives, while the decision is still easy. Every figure in it is a made-up example.
A raise rule is a personal rule that splits every pay increase, in advance, between saving, your goals and spending. You make it once, before the raise lands, and apply it each time your pay goes up.
The reason to decide early is the lesson from 7.1, Lifestyle creep happens one reasonable upgrade at a time. Once extra money is arriving each month, it gets absorbed into daily life within weeks. Cutting back later feels like a loss, even though you were living without it a month earlier. Deciding before the money arrives means you never get used to spending all of it, so there is nothing to give up.
A raise rule also lets you enjoy part of the raise without guilt. The spending share is yours to spend, by design.
Start with the right number. A raise in your contract is a gross figure, and your employee CPF comes off it, as lesson 2.1 showed. So the extra in your bank account is smaller than the raise.
Hui Min's raise is S$300 a month. In this example, S$60 of it goes to her own CPF, so her take-home pay rises by S$240. Her employer's CPF rises too, which is a real gain, but it is not money she can split. The rule applies to the S$240.
There is no correct split. What matters is that it reflects what you want your money to do. Common choices put at least half towards saving and goals, and the rest towards spending, but the right shares for you depend on what your first-year review shows.
Hui Min thinks about it in three parts. Saving comes first, because her emergency fund is not yet at its target and she wants to start investing after that. Her parents come second, because she told her mother in lesson 4.2, Decide what to give your parents and say it out loud, that she would review the allowance when her pay changed. Spending comes third, and she wants it to be real enough that she notices the raise.
Her rule: 50% to saving, 20% to her parents' allowance, 30% to spending. On S$240, that is S$120 more to savings each month, S$48 more to her parents and S$72 more to spend. She rounds the allowance increase to S$50 so the new figure is a clean S$450.
The AWS and bonuses are where creep can do the most damage in a single day, because they arrive as one large sum. Apply the same idea to them, with one change: set aside a share for a one-off treat, so the rule includes something to look forward to.
Hui Min's bonus rule is this: 20% for a treat, then S$1,000 to her study loan this year as planned in lesson 5.4, and the rest to savings. Her AWS in lesson 2.3 arrived as S$3,200 after CPF. Twenty per cent of that is S$640, which pays for the Taipei trip. S$1,000 goes to the loan. The remaining S$1,560 goes to her emergency fund.
Because the treat is written into the rule, Hui Min can enjoy the trip without feeling she broke anything, and the rest of the bonus still does real work.
A rule only works if the money moves. The simplest way is to update your automatic payday transfers from lesson 4.4 on the day the raise takes effect, before the first larger salary arrives.
Hui Min updates two transfers in April: the buffer transfer goes from S$400 to S$520, and the transfer to her mother goes from S$400 to S$450. The remaining S$70 of her raise stays in her everyday account to spend, and the whole change takes her about five minutes. If she had waited until June to do it, two months of extra pay would already have been spent without a decision.
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 with the percentage to saving and spending, and set a reminder for your next review date.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).