You will be able to set up an envelope-style budget using separate accounts, cards or wallets for the categories you overspend in.
Put each spending category's money in its own place at the start of the month, and pay for that category only from there. The balance you see before you pay is then the amount you have left. When it reaches zero, that category is finished until next month.
Farhan, 31, is the second example person in this course. He sells cars on commission, and his figures here are made up for the example. He has a written budget: S$450 a month for food outside home and S$120 for rides. He goes over both every month. He finds out on the 30th, when he adds things up. By then the money is gone and all he can do is feel bad about it.
His plan is reasonable. The problem is that he can't see it while he is spending. When he pays for dinner, the number in front of him is his main account balance of S$2,600. That looks like plenty for one more meal, even when his food money for the month is already used up. A large balance makes one more purchase feel affordable, whatever the plan says.
The envelope method solves this by making the number you see the same as the number you have left. Each category's money goes into its own place at the start of the month. When an envelope is empty, that category is finished until next month. You don't need to keep separate records, because the envelope's balance does the tracking.
The method began with cash in paper envelopes, each labelled with a category such as groceries or eating out. Some people still do it that way. In Singapore, though, most spending goes through cards, QR codes and apps, so cash envelopes are awkward. A digital version works the same way. In the cashless sense, an envelope is anything that holds a separate balance you can see before you pay. There are three common options:
A second bank account with its own debit card. On payday, transfer the category's monthly amount into it, use that card only for that category, and check what's left in its app. An e-wallet with a fixed monthly top-up. This suits small, frequent spending. Labelled pockets or sub-accounts, which some banks let you split one account into. These work only if the card you pay with draws from the pocket and not from the main balance, so check how your bank's pockets behave before you rely on them.
Farhan uses two envelopes. Food outside home gets S$450 in a separate account with its own debit card. Rides get S$120 in his e-wallet, topped up on payday and used only for rides. When the e-wallet drops to S$30 with ten days to go, he knows to take the MRT for a while, and he doesn't have to open a spreadsheet to find that out. Everything else stays in his main account, and he tracks it loosely.
Leave out fixed bills that are the same every month and paid by GIRO or standing instruction, such as rent, insurance premiums and your phone plan. Envelopes for these add work and teach you nothing.
Use envelopes only for the 2 or 3 categories where you actually overspend. For most people these are categories made of many small decisions: eating out, delivery, rides, shopping. To find yours, go back to your spending picture from lesson 1.4. The categories where your guess was furthest from the real figure are usually the right ones.
Fewer envelopes are easier to keep up. Farhan can manage two easily. Seven would have him moving money between accounts every few days and quitting by March.
Many Singapore savings accounts pay bonus interest only if you meet certain monthly requirements. Examples are crediting your salary, spending a minimum on the bank's card, paying bills from the account, or growing your average balance. These bonus interest conditions differ by bank and change from time to time.
Moving spending to another account or card can make you miss one. If Farhan moved his S$450 of food spending off the bank's credit card, he could fall below a card spend condition. Moving money out of the main account on payday could lower the balance the bonus is calculated on.
Before you set up an envelope, read your main account's current conditions on your bank's website and check which ones your plan would affect. If one is affected, you can use a debit card or sub-account at the same bank. Or you can decide the bonus is small enough that the control is worth more to you. Make that choice with the numbers in front of you, before you start. Otherwise you may only notice a smaller interest credit three months later.
You have two allowed choices. You can wait until next month. Or you can move money on purpose from another envelope or category, which follows the rule from lesson 2.1, Zero-based budgeting: give every dollar a job. You can't pay from your main account and act as if it didn't happen.
Once the envelopes are set up, the monthly routine is short. On payday, move each category's monthly amount into its envelope. Pay for that category only from its envelope, and check the balance before you pay.
Start with your own overspending. Look at your spending picture, pick the two categories that ran furthest over your guess, and think about where each one's money could live.
Pick the two categories you overspend in most and write down which account, card or wallet would hold each one's monthly amount.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).