Test whether your household budget works on one income, and decide what has to change if it does not.
Hui Min and Daniel both work and share one household budget. Daniel works in sales and takes home S$6,000 a month and Hui Min takes home S$4,000 (example figures, like every number for this couple below). Like most couples, they built their budget on the quiet assumption that both salaries arrive every month.
That assumption fails in the month one salary does not arrive. Lesson 4.1 listed what changes when a household drops to one income, and this exercise tests your own budget against that list. You test it twice: once on the higher income alone and once on the lower income alone. Most couples only picture the higher-income case. The lower-income case is often the more uncomfortable one, and it is usually the more useful one to work through.
Set aside about half an hour. You need the shared cost sheet from lesson 3.4, both partners' personal spending, and the cover list from lesson 4.2.
Step 1 is to rebuild the full budget. Put every regular monthly cost, shared and personal, into one list. Personal costs belong here because a single remaining salary would have to pay for all of them: phone plans, transport, insurance premiums, loan repayments and allowances to parents.
Then mark each line. An essential cost is one that must be paid even in a hard year, such as housing, utilities, food, insurance premiums, debt repayments and, for most families, parents' allowances. A pausable cost is one you can stop or reduce for a while without lasting damage, such as holiday savings, extra payments into a goal, eating out, subscriptions and hobbies.
Be honest about the essential column. A parent's allowance can feel essential and really be essential. A gym membership feels essential to some people but does not belong in that column.
Hui Min and Daniel's combined monthly costs, shared and personal, come to S$5,800. Their essential lines total S$4,400:
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 phones and transport S$400
Their pausable lines total S$1,400: the BTO flat fund S$400, eating out and entertainment S$600, the travel fund S$200 and other personal spending S$200. S$4,400 + S$1,400 = S$5,800.
Step 2 runs two cases. Case A is the budget on the higher take-home pay alone, and Case B is the budget on the lower take-home pay alone. Each case gives you two numbers: income minus all costs, and income minus essential costs only.
If income minus all costs is positive, the budget survives with no changes. If only income minus essentials is positive, the budget survives once the pausable lines are paused, and you now know which lines those are. If both numbers are negative, that income alone cannot cover even the essentials, and the gap has to come from savings, cuts to essentials, or a plan to raise income.
For Hui Min and Daniel, Case A is Daniel's S$6,000 alone. After all costs, S$6,000 - S$5,800 = S$200 left. After essentials only, S$6,000 - S$4,400 = S$1,600 left. They survive, but only just unless they pause something. A baby would add new costs, and in that event they would pause the travel fund and halve eating out.
Case B is Hui Min's S$4,000 alone. After all costs, S$4,000 - S$5,800 = S$1,800 short. After essentials only, S$4,000 - S$4,400 = S$400 short each month, so pausing every pausable line still leaves them short.
In both cases, mark which pausable lines you would stop first and which you would keep for as long as possible.
Your emergency fund was set in lesson 3.1 of The Singapore personal finance system, "How big your emergency fund should be". It was probably sized for losing one salary while the other continues. Step 3 checks that size against a household running on one income, both for a planned drop, such as a partner staying home for two years, and for a sudden one.
For any case where essentials are more than income, work out the extra amount like this: extra fund needed = monthly shortfall on essentials x expected number of months the drop lasts. For a sudden job loss, the number of months is a realistic estimate of how long that partner would take to find work in their field. For a planned break, it is the length of the break. The extra amount sits on top of what the fund already holds for other surprises.
Hui Min and Daniel assume, as an example, that Daniel could take six months to find a new sales role. Their Case B shortfall on essentials is S$400, so 6 months x S$400 = S$2,400 more in the emergency fund.
Step 4 is to copy in the protection gaps from lesson 4.2: the earning partner's cover compared with what the household would need, plus any cover that only exists through a job. If either partner could become the sole earner, do this check for both of them.
From lesson 4.2, Daniel's personal cover is S$510,000 short of what he would need as sole earner. Hui Min has no life cover outside work, which matters in Case B, where she would be the one earning.
Your finished sheet holds the full budget with every line 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 written in the order you would make them.
Hui Min and Daniel's first change is to add S$2,400 to the emergency fund over the next year. Their second is to review Daniel's personal cover. Their third is to agree that if Daniel ever leaves his job to start his business, the flat fund pauses first and both sets of parents' allowances are reviewed with the siblings.
Start with the full budget, because neither case can be run until every cost is on one page.
Run the stress test for both one-income cases, then write down the first three changes you would make.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).