You will test whether your household budget works on one income and what must change if not.
Most household budgets are built on the assumption that both salaries arrive every month. That works right up to the month one of them does not. Lesson 4.1 listed what changes when a household drops to one income. This exercise tests your own budget against it, twice: once on the higher income alone and once on the lower income alone. Most couples only ever picture the first case. The second one is often the more uncomfortable, and the more useful.
Set aside half an hour with your shared cost sheet from lesson 3.4, both partners' personal spending, and the cover list from lesson 4.2.
Write down every regular monthly cost the household has, shared and personal, in one list. Include each partner's own costs, such as phone plans, transport, insurance premiums, loan repayments and allowances to parents, because when only one salary arrives, it has to pay for all of them.
Then mark each line essential or pausable. Essential means it has to be paid even in a hard year: housing, utilities, food, insurance premiums, debt repayments and, for most families, parents' allowances. Pausable means you could stop or shrink it for a while without doing damage that lasts: savings for a holiday, extra payments into a goal, eating out, subscriptions, hobbies.
Be honest with the essential column. A parent's allowance may feel essential and be essential. A gym membership feels essential to some people and is not.
Case A uses only the higher take-home pay. Case B uses only the lower one. For each case, work out two numbers: the income minus every cost, and the income minus essential costs only.
If the first number is positive, the budget survives without changes. If only the second is positive, the budget survives once you pause the pausable lines, and you now know which ones. If both are negative, the household cannot cover even its essentials on that income alone, and the gap has to come from savings, cuts to essentials, or a plan to raise income.
Mark the pausable lines you would stop first and those you would keep as long as you could.
Your emergency fund from lesson 3.1 of The Singapore personal finance system, How big your emergency fund should be, was probably sized around losing a salary while the other carries on. In a planned drop, such as a partner staying home for two years, or in a sudden one, check whether it covers the case you have just found.
For any case where essentials exceed the remaining income, multiply the monthly shortfall by the number of months you think the drop could last. For a sudden job loss, use a realistic estimate of how long it would take to find work in that partner's field. For a planned break, use its length. That is the extra amount the emergency fund needs on top of what it already holds for other surprises.
Copy in the gaps you found in lesson 4.2: the earning partner's cover against what the household would need, and any cover that only exists through a job. If either of you could be the sole earner, do it for both.
Hui Min and Daniel's figures are examples. Their combined monthly costs, shared and personal, are S$5,800. Of that, S$4,400 is essential: rent S$1,700, utilities and internet S$200, groceries and household S$700, both parents' allowances S$900, Hui Min's loan repayment S$200, insurance premiums S$300, and phones and transport S$400. The other S$1,400 is pausable: the BTO flat fund S$400, eating out and entertainment S$600, the travel fund S$200 and other personal spending S$200.
Case A, Daniel's S$6,000 alone: after every cost, S$200 is left. After essentials only, S$1,600 is left. The budget survives, but only just, unless they pause something. A baby would add new costs, so they would pause the travel fund and halve eating out.
Case B, Hui Min's S$4,000 alone: after every cost, they are S$1,800 short. After essentials only, they are still S$400 short each month. Pausing everything is not enough.
For Case B they assume, as an example, that Daniel could take six months to find a new sales role. Six months at S$400 is S$2,400 that their emergency fund needs on top of what it already holds.
Their protection gaps from lesson 4.2: Daniel's personal cover leaves a gap of S$510,000 as the sole earner, and Hui Min has no life cover outside work, which matters in Case B, where she would be the earner.
Their three first changes: add S$2,400 to the emergency fund over the next year, review Daniel's personal cover, and agree that if Daniel ever leaves his job to start his business, the flat fund pauses first and both parents' allowances are reviewed with the siblings.
That is what done looks like: a full budget marked essential or pausable, both cases worked out with and without the pausable lines, an emergency fund figure for the worse case, the protection gaps, and three changes in the order you would make them.
Start with the full budget, because neither case can be run until every cost is on one page.
Complete the stress test for both one-income cases and write the three changes you would make first.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).