Explain how irregular costs can push a balanced monthly budget into debt or drain your savings.
Give every cost that arrives once or a few times a year its own line in your monthly budget. Without that line, a budget can balance every month and still fail, because each month's plan stops on the month's last day while some of your largest costs come in lumps.
Wei Ling has just started budgeting (her story and every amount in this course are invented examples). January goes to plan. She keeps her eating out below S$420 and orders delivery less often. When the month closes she has S$630 of "future you money" in savings.
February brings Lunar New Year. She gives red packets to her parents and to her nieces and nephews. She also buys new clothes, puts money towards the reunion dinner, and pays for several Grab rides across the island to visit relatives. Altogether she spends S$880, and her budget has no line for any of it. To cover it she takes most of January's S$630 back out of savings and puts the rest on her credit card. One week of festive spending has wiped out a month of careful budgeting, and she now has a credit card balance too.
An irregular cost is one you pay once a year or a few times a year instead of every month. The usual ones are:
insurance premiums you pay yearly instead of monthly a credit card annual fee that hasn't been waived yearly renewals for software, cloud storage or a gym membership road tax and car insurance, for drivers birthdays, weddings and baby showers travel festive seasons
Most of these don't show up in any given month, so a monthly budget can look healthy. Across twelve months, though, they can add up to more than a month's take-home pay.
In Singapore the festive seasons are among the largest of these costs, and which ones apply to you depends on what you celebrate. At Lunar New Year the money goes on red packets, new clothes, gifts for the hosts you visit and rides between relatives' homes. For Hari Raya Puasa it goes on green packets, a new baju kurung or baju melayu, and open-house visits. Deepavali often involves new clothes, sweets and decorating the home. Christmas is usually presents and a meal out. Many people celebrate more than one of these with friends and colleagues, so the costs pile up over the year.
Large costs also turn up away from the festivals. A season of weddings, a year-end family trip or several birthdays in the same month can each cost about as much as a festival.
If you haven't put money aside, a lump-sum bill gets paid one of two ways: from savings or on a credit card.
Using savings feels like the responsible choice, but it means that month's saving was never real saving. The money sat in the account for a short while and was always going to be spent. Take someone who saves S$600 each month and withdraws S$600 every second month for irregular costs (a made-up case). At the end of the year they have saved only half of what they think they have.
A credit card does more damage. If you don't pay the full balance by the due date, interest starts on the purchase. A S$500 bill (another made-up case) left on a card for a few months at card interest ends up costing you noticeably more than S$500. The debt then needs a payment each month, which competes with next month's budget and makes it more likely that the next irregular cost also goes on the card.
Either way, that month's progress is lost. At this point many people decide budgeting doesn't work for them, when their budget was simply missing a line.
You can predict irregular costs even when you can't predict the exact amount, and a budget line built on a fair estimate is better than having no line. Wei Ling can't say exactly what next Lunar New Year will cost her. She does know which month it falls in, and she can use last year's S$880 as a guide.
Most of these costs give you plenty of warning. Your insurance policy has its renewal date printed on it. Wedding invitations arrive months before the day. A phone that is three years old will need replacing soon, even if you can't name the month. For each cost you can see coming, write down when it falls. Then estimate the amount from that timing and from what it cost last year, and give it its own line in your budget.
Costs you can see coming are a normal part of life, so they belong in the budget. Your emergency fund is for things nobody could have predicted. Keep it for those, and don't use it for foreseeable costs.
Start by finding them. Look back through the last twelve months, as far as you can remember and as far back as your statements go, and list every cost that wasn't part of a normal month. The festive seasons are the obvious place to start.
List every lump-sum cost you paid in the last twelve months that sat outside your normal monthly spending.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).