Rebuild your budget after a raise, a move, a new partner or a drop in income.
Wei Ling hears in March that her salary goes up in April (an invented example). Once the new pay starts, the income figure her budget is built on will be out of date, and she will need a budget that starts from the new figure.
Every budget is built on a few facts about your life: your income, your home, the people you split costs with, and your debts. While those facts hold, the monthly close from lesson 7.1 keeps your numbers accurate. At some point one of them shifts. You might get a raise, move to a new flat, start living with a partner, have a baby, lose a job, or find that a parent needs more help from you. After a big shift like this, each category sits on figures that are no longer true. The small corrections you make at the monthly close can't close that gap. When a big fact changes, rebuild the budget from the start rather than patching it.
Plenty of changes affect only one line. Joining a gym, for example, raises your subscriptions line. You update that figure and keep using the budget as it is.
A change that moves the foundations shifts the income or fixed costs your whole budget was designed around. Four kinds of change usually fall into this group:
A raise changes your take-home pay. Take-home pay is the starting figure in every budget method from module 2. A move changes rent, utilities, transport and often groceries at the same time. Someone joining the household changes almost every needs line and how costs are divided. That person might be a partner, a flatmate, a child or a parent coming to live with you. A fall in income changes how much the plan as a whole can carry.
When one of these happens, you do a rebuild. That means writing a new budget from the new facts with the method you've chosen, instead of adjusting the old lines. Go back to the beginning of the budgeting process and work out your new take-home pay or your new fixed costs. Draft a fresh budget with your method. Then rework your sinking fund, debt and buffer lines wherever they no longer fit.
Of the four, a raise is the one people most often waste. If there's no plan for the extra money each month, it goes into ordinary spending within a few weeks. Twelve months later you would struggle to say where it went. So decide where a raise goes before it arrives, and give every dollar of the increase a job.
There are three steps. Before the raise starts, work out how much your take-home pay will actually go up after CPF. Next, divide that increase among your categories until every dollar is assigned. Then begin your new budget from the new take-home figure.
Wei Ling does this in March, a month before her pay changes. After CPF, she will take home S$250 more each month (an example figure). She sends S$150 of it to her buffer. Once the buffer is full, that S$150 goes to her Japan fund instead. The remaining S$100 goes to eating out and a bit more shopping. These were the two categories she ranked highest when she listed what she values in lesson 4.1. Since S$150 + S$100 = S$250, the whole raise is allocated. Her budget now starts at S$4,050 rather than S$3,800, and the extra S$250 is already allocated by the time her first higher payslip comes in.
The complete raise method is in the course "Your first job: the money playbook", lesson 7.2, "The raise rule: decide where the next increase goes before it arrives". It also shows how CPF affects how much of a raise reaches your account. The course is written for people in their first job, but the same steps work for a raise at any stage of your career.
A fall in income also needs a rebuild, this time downward, and the order of the cuts matters. Keep your needs and your debt minimums covered first. Then reduce your wants and any debt payments above the minimum until the budget fits. Pausing savings such as buffer contributions is part of the same step.
The order follows from what each kind of cut costs you. If you fall behind on a need or a minimum payment, you could lose your room, pay late fees or get a mark on your credit record, and those effects last. Spending less on wants or paying debt off more slowly only delays your progress for a while. A slower debt plan can catch up later, but a missed minimum stays on your record.
Farhan is a car salesman paid on commission. Sales have been slow, and his commission has dropped three months in a row. His lowest normal month used to be S$3,400 and is now nearer S$2,900. Lesson 7.2, "Read the gap between plan and actual", says to treat a drop that lasts several months as a change in the facts rather than a one-off. Farhan does that and builds his new budget from S$2,900.
He keeps his rent, the money he gives his family, his transport and his card minimums covered. For now he cuts his card payments from S$600 to the minimums. He also spends less on food outside the home and on shopping, and stops paying into his buffer. The budget is tight but it balances, and none of his legal or contractual commitments are at risk. If he couldn't have covered even the minimums, his next step would have been to call his lender early, as lesson 5.3, "When you can't make a payment, talk to the lender early", describes.
When his commission picks up again, Farhan doesn't switch straight back to his old budget. He waits for two normal months. Then he puts his card payments back up first, and brings back his wants after that.
Moving in with a partner, or merging money after marriage, raises questions that numbers alone can't settle. You'll need to decide whether to keep joint or separate accounts, and how to split shared costs if one of you earns more. The course "Money as a couple and a family" covers those questions. For the budget itself, work out your new share of the fixed costs once the household has changed. Then write the budget again from that share instead of editing the old one line by line.
Most of these changes come with some warning, as Wei Ling's raise did. Think about the year ahead and write down which of these changes could happen to you, and which budget lines each one would move.
List the life changes you expect in the next year, and next to each one write the budget line it would change.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).