You will build a twelve-month calendar of irregular costs with a monthly sinking fund total that goes into your budget.
Wei Ling builds her sinking fund calendar in March and makes her first transfer that month. She wants every irregular cost covered by one monthly amount that leaves her salary account on payday, so nothing catches her short later in the year.
You can build the same calendar from the irregular cost list you made in lessons 3.1 and 3.3, using the monthly amount method from lesson 3.2. It takes about 30 minutes. You build it once, and after that you only keep it up to date.
Open a new tab in the spreadsheet that already holds your budget. Make 5 columns: cost, expected amount, month due, months until due and monthly amount. Fill in the first three columns for every item on your list.
The expected amount is what the cost was last time, rounded up a little if prices have gone up since. Some costs come round only every few years, such as a phone. For those, put the month you expect to replace it in the month due column.
For each row, count the months until due, which is the number of transfers you will actually make before the cost is due. The month the cost lands is not counted. Wei Ling makes her first transfer in March, so a cost due in July has 4 transfers before it: March, April, May and June.
Then divide the expected amount by the months until due to get the monthly amount. A formula that divides the amount column by the months column does this for every row at once. Wei Ling's calendar looks like this, with invented example figures:
Dental check-up: July, S$160, 4 months, S$40 a month Wedding gifts and outfit: September, S$300, 6 months, S$50 a month Penang trip: November, S$900, 8 months, S$112.50 a month Christmas and December birthdays: December, S$360, 9 months, S$40 a month Lunar New Year: next February, S$880, 11 months, S$80 a month Cloud storage renewal: next March, S$48, 12 months, S$4 a month Phone replacement: in 24 months, S$1,080, 24 months, S$45 a month
Add up the monthly column. The total is your sinking fund line, a single budget line that covers every cost on the calendar. Wei Ling's total comes to S$371.50 a month (40 + 50 + 112.50 + 40 + 80 + 4 + 45).
Her budget from lesson 2.5 sets aside S$630 for future you. That same money also has to cover her debt, which module 5 deals with, and her buffer, which module 6 deals with, so S$371.50 a month leaves too little for both.
If your total does not fit, rank the costs by how much each one matters and cut from the bottom. Each low-ranked cost has three options: reduce it, push it further away, or remove it. Wei Ling puts Lunar New Year, the dental check-up and the phone at the top, because skipping them is not really an option for her. The wedding and the December presents sit in the middle, and the trip and the cloud storage go at the bottom.
She books a cheaper hotel and flies on weekdays, which brings the Penang trip down from S$900 to S$600, or S$75 a month (S$600 / 8). She barely uses her cloud storage, so she cancels it and moves her photos to a free plan, taking S$4 a month off. Her new total is S$330 a month, leaving S$300 (S$630 - S$330) for debt and buffer, which is tighter than she hoped. Finding this out early still helps, because it's better to know your budget is tight in March, with months left to adjust, than to find out in November.
Add a "sinking funds" line to next month's budget and enter your total from step 3. Take the money from your future you allocation, or from wants if you find that festive or travel spending was hidden in wants before. Wei Ling's budget becomes needs S$2,160, wants S$1,010, sinking funds S$330 and future you S$300, which still adds up to S$3,800.
Then set up a standing instruction or recurring transfer for the full total, moving the money from your salary account to your sinking fund account on payday. Payday works best because the money leaves your salary account before you have a chance to spend it.
When you pay a cost, update its row. The next round of that cost is usually twelve months away, so its monthly amount drops. After Wei Ling pays for her July dental check-up, her dental fund needs only about S$13 a month (S$160 over 12 months).
Review the calendar at each monthly close, the routine covered in module 7, and change the transfer whenever the total moves by more than a few dollars. Once it's done, you have one tab listing every irregular cost with its due month and monthly amount, a total that appears as a line in your budget, and a payday transfer that runs without you doing anything.
Start by copying your list into the five columns.
Build the calendar, add the sinking fund total as a line in next month's budget, and set the payday transfer.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).