You will build a statement of money in and money out over the last three months.
Most people can tell you their salary to the dollar. Far fewer can tell you what they spent last month, or whether anything was left at the end of it. The money arrives, the money goes, and the balance before the next payday is the only clue.
A cash flow statement replaces that clue with a figure. It shows money in and money out over a period, and the gap between them. In this exercise you build one for the last three months. Set aside half an hour, with your bank and card statements open.
Start with income you actually received. For most people that is take-home pay, the amount that landed in your account after CPF and any other deductions, which is smaller than the salary in your contract. Lesson 2.1 explains how gross pay turns into take-home pay.
Then add any other money that arrived: a side job, rent from a room, a bonus paid in one of these months, money a family member sends you regularly. Leave out transfers between your own accounts, which are not income, and refunds, which are better treated as a reduction in the spending they reverse.
Write one figure per month, so you have three income lines.
Download three months of statements for every bank account and card you use. Go through them line by line and put each outflow into one of three groups.
Fixed costs: the same, or nearly the same, every month. Rent or your home loan, phone and internet, insurance premiums, loan repayments, money you give your parents. Variable costs: everything that moves. Food, transport, shopping, entertainment, gifts, travel. Savings: money you moved to a savings account, an investment account or a fund for a goal.
Two traps to watch for. When you pay your card bill from your bank account, do not count the bill and also the purchases on the card, or you will count the same spending twice. Count the purchases from the card statement, and ignore the bill payment. And cash withdrawals are spending, usually variable, even if you cannot remember what they were for.
A festival, a wedding gift or a trip can make a normal month look like a crisis, and a quiet month can flatter you, so one month on its own tends to mislead. Three months averaged give you a steadier figure. Add up each line across the three months and divide by three, and you have an average monthly income, an average for fixed costs, an average for variable costs and an average for savings.
Your surplus is average income minus average fixed costs minus average variable costs. If the result is negative, it is a shortfall.
You do not take the savings line away here, because the money you saved came out of the surplus in the first place. Put the two figures side by side. If you saved less than your surplus, the difference stayed in your accounts without a job to do, and if you saved more, you drew down your cash to do it.
Every other layer of the system is paid for out of this one figure. The emergency fund comes in module 3. Insurance premiums are in module 4, and debt repayments and investing in module 6.
Here is the statement for Darren, 27, with figures made up for the example. He takes home S$4,200 every month and earns extra from weekend tutoring: S$400 in January, nothing in February and S$500 in March. His income was S$4,600, S$4,200 and S$4,700, a total of S$13,500 over three months, or S$4,500 a month on average.
His fixed costs are the same each month: S$900 rent, S$500 to his parents, S$250 on his study loan, S$150 in insurance premiums and S$30 for his phone. That is S$1,830 a month.
His variable costs were S$1,600 in January, S$2,700 in February, when Chinese New Year brought red packets, visits and new clothes, and S$1,550 in March. The total is S$5,850, so the average is S$1,950.
He moved S$500 to savings in each month.
His surplus is S$4,500 minus S$1,830 minus S$1,950, which leaves S$720 a month. He saved S$500 of it on purpose. The other S$220 a month sat in his current account and drifted.
Look at February on its own and you get a different story. Income of S$4,200 against spending of S$1,830 plus S$2,700, which is S$4,530, gives a shortfall of S$330 that month. January had a surplus of S$1,170 and March S$1,320. Add the three, S$1,170 minus S$330 plus S$1,320, and you get S$2,160, which is S$720 a month, the same answer as before. Had Darren only looked at February, he would have decided he was overspending. Over three months, he is not.
A finished statement fits on one screen. It has three months side by side, an income line, a total for each of the three spending groups, and an average column. At the top, in large type, is one figure: your average monthly surplus or shortfall.
Every outflow in your statements should sit in a group. If a few small items defeat you, put them in variable costs and move on. A figure that is roughly right is far more useful than a perfect one you never finish.
Once your number is at the top of the sheet, keep it in view. Lesson 2.2 uses it to set the spending plan you will actually follow.
Complete the three-month cash flow statement and write your average monthly surplus or shortfall at the top.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).