You will be able to set a monthly spending plan based on your cash flow statement.
Most people who try a budget give up on it within a couple of months. Usually the method was fine. The trouble is that the numbers came from somewhere else: a template that said rent should be a third of income, or a percentage split from a video, or a figure that felt about right. The first normal month blows through the plan, and the plan gets abandoned.
This lesson sets a spending plan that starts from what you actually spend. You already have the figures from lesson 1.4, Build your cash flow statement.
A spending plan is a promise you make to yourself about next month. If it asks you to live on far less than you spent in each of the last three months, you will break it, and a broken plan teaches you nothing except that plans do not work.
So take your cash flow statement and start there. Your fixed costs are your fixed costs, because rent and loan repayments do not respond to willpower. Your variable spending is the starting point for your day-to-day budget. If you want to spend less, cut by a modest amount you can keep, and cut again next quarter if it holds.
There is one adjustment worth making before you begin. If part of your income is irregular, such as freelance work, commission or a side job, plan from the part you can count on and treat the rest as a bonus that goes straight to saving when it arrives.
The usual approach is to spend through the month and save whatever is left. In practice very little is ever left, because spending expands to fill the account.
Turn it round. Decide the saving amount first, as a fixed sum, and treat it as the first bill you pay. Then split what remains between fixed costs and day-to-day spending. If the sums do not work, change the saving amount on purpose rather than letting it shrink by accident.
The saving amount covers the layers coming next in this course: your emergency fund first, then the other goals once the fund is full.
Some costs arrive once or twice a year and wreck the month they land in: Chinese New Year or Hari Raya, birthdays and weddings, insurance premiums paid yearly, travel, an annual subscription. They are not emergencies. You knew they were coming.
Add them up for a year, divide by twelve, and set that aside each month in a separate line. When the cost arrives, the money is there, and your day-to-day budget does not take the hit.
Darren, 27, from lesson 1.4, works with figures made up for the example. His take-home pay is S$4,200, his tutoring averages about S$300 a month but varies, his fixed costs are S$1,830 and his variable spending averaged S$1,950.
He plans from the S$4,200 only, and decides the tutoring money goes to savings whenever it arrives.
Next he pulls the irregular costs out of his variable spending. Chinese New Year cost him about S$1,100 this year, and he spends about S$2,500 a year on travel. That is S$3,600 a year, or S$300 a month for the irregular costs line. With the festival taken out, his normal monthly variable spending is about S$1,580, the average of January's S$1,600, February's S$2,700 less the S$1,100 festival, which is S$1,600, and March's S$1,550.
His first try sets a saving amount of S$600. Then S$4,200 minus S$600 for saving, minus S$1,830 fixed, minus S$300 irregular, leaves S$1,470 for day-to-day spending. That is about S$100 below a normal month for him, and he knows he will not hold it.
So he sets the saving amount at S$500. The same sum now leaves S$1,570 for day-to-day spending, which matches what he really spends. His plan reads: saving S$500, fixed costs S$1,830, irregular costs S$300, day-to-day S$1,570. Those four lines add up to S$4,200. With his tutoring added to savings, he still puts away about S$800 in an average month.
The plan saves less on paper than his first try, and it is the one more likely to last.
This lesson gives you a plan that works. There are many methods for running a budget in finer detail: envelope systems, zero-based budgets, percentage splits, tracking apps. They are taught in Money Foundations: budget, debt, buffer, along with how to cut spending without feeling deprived. You do not need any of them to finish this course.
With your cash flow statement open, you have everything you need to draft your own plan on a single page.
Write a one-page spending plan with a saving amount, fixed costs, a day-to-day budget and an irregular costs line.
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