You will be able to design a set of accounts that separates business money, tax money and personal money.
Picture a client paying you S$4,000 into the same account your salary used to land in, the one with your debit card attached. By the weekend it has mixed in with groceries, a dinner, a new pair of shoes and the electricity bill. Three months later you cannot say how much of that S$4,000 was yours to spend and how much belonged to IRAS and your MediSave account. Nothing went wrong in any single purchase. The problem was where the money landed.
The base-pay method from lesson 1.1 only works if business money, tax money and personal money live in different places. This lesson shows you how to lay out those places and how money moves between them.
The first is the holding account: the account every client payment goes into, and the one you never spend from directly. No debit card in your wallet, no PayNow linked to your daily spending, no direct debits for personal bills. It is a reservoir. Money comes in unevenly and leaves on a schedule you set.
The second is the tax and MediSave pot. A fixed share of every payment moves here on the day it arrives. This money is already spoken for. It will pay your income tax bill and your MediSave contribution, both of which arrive months after you earned the money, and module 2 shows why the timing catches so many people out.
The third is your personal account. Your base pay arrives here on the same date each month, like a payslip. Everything in your normal life runs from this account: rent, food, transport, insurance premiums, your savings transfers. Because the amount never changes, you can budget from it exactly as you did when you had an employer.
Some people add a fourth account for business costs. Software subscriptions, equipment and printing are paid from it, topped up from the holding account. It is optional, but it makes the records in module 4 much easier, because every business expense sits in one statement.
You do not need a new bank for any of this. Many banks let you open extra savings accounts or sub-accounts in the same app. Check each one for fees and minimum balances before you commit, and keep your total at any one bank in mind for deposit insurance, which lesson 1.3 of How money works, What SDIC deposit insurance covers and what it does not, explains.
Follow Mei's S$4,000 through the system. Her figures are an example.
The payment lands in the holding account. The same day, she moves 15% of it, S$600, to the tax and MediSave pot. That leaves S$3,400 in the holding account. Nothing else happens until her pay date. On the 25th of each month, a standing transfer moves her base pay of S$2,300 to her personal account. Her S$300 of monthly business costs is paid from the holding account as well, or from the business costs account if she sets one up.
The order matters. The pot is filled first, when the payment arrives, because that is the moment the money exists. If you wait until month end, you will be moving whatever is left, and in a busy month that might be less than the share you owe. The base pay transfer comes next, on a fixed date. Whatever stays behind is the business's to keep.
You do not need a separate buffer account. The holding account already does that job.
Treat one month of base pay in the holding account as working cash. It is the money that will pay next month's salary. Everything above that line is your income smoothing buffer, the money that carries base pay through a thin month or two. For Mei, with base pay of S$2,300, a holding account balance of S$9,200 means S$6,900 of buffer, enough to pay herself for three months with no new income at all.
Seen this way, the holding account balance becomes the most useful number in your freelance finances. When it rises, the business is earning more than you pay yourself. When it falls over several months, it is earning less, and module 8 shows you how to read that early. Some people also keep a separate personal emergency fund, as set out in module 3 of The Singapore personal finance system. For a freelancer, the buffer in the holding account and that emergency fund often end up being the same money, so decide which one it is and count it once.
Name each account after its job in your banking app: Holding, Tax and MediSave, Salary. The name is a reminder every time you log in.
Keep the pot untouchable. If you borrow from it for a quiet month, write down the amount and repay it from the next payment before anything else. A pot that has been raided is a bill you cannot pay.
Give clients only the holding account details. If an old client still pays into your personal account, move the money across to the holding account the same day and update your invoice details.
The test of the setup is whether you could draw it from memory: which account each payment hits, what moves out of it, how much and when. The activity asks you to put it on paper as boxes and arrows, with the share or amount on every arrow, so the flow is clear before you change anything in your bank.
Draw your account flow as boxes and arrows, with the share or amount that moves at each step.
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