Design a set of standing transfers that run on payday.
Open your banking app and look at the balance in the account your salary is paid into. Then try to say how much of it you could spend today without causing a problem later in the month.
Most people can't answer that from the number alone. A balance of S$3,000 (an invented figure) might be plenty, or it might all be committed to rent, a card bill and your parents' allowance. When salary, rent, the card bill and leisure spending all draw on one balance, the balance tells you nothing about whether you have money to spare.
This is also where saving plans go wrong. Most people make their saving plans on payday, and those plans tend to fail in the two weeks after it. The money meant for saving gets spent, bit by bit, on things you would not have chosen over saving if you had been asked. The fix is to make the decisions once, while you're calm, and have the bank carry them out every month. The set of scheduled transfers and auto-payments that does this is your payday flow. You'll design yours on paper here and set it up in lesson 2.4.
Split your money by purpose. Most people need three places: one for bills, one for spending and one for savings.
The bills account receives the money for your fixed costs and pays them. If its balance is correct after payday, every bill is covered and you never need to check it.
The spending account holds your day-to-day budget for the month. It's the account behind the card you use for everyday purchases, at the hawker centre or on the MRT. Its balance is what you can spend, so a glance tells you how the month is going.
The savings account receives your saving amount plus the irregular costs line from your spending plan.
You may not need to open any new accounts. Many banks offer sub-accounts or labelled pots inside one account, and these work as well as separate accounts. Use what you already have where you can: your salary account may work well as the bills account, and an old account you rarely use may make a good savings account. Before you move any money around, read the terms of your main account, for the reasons explained under bonus interest below.
Schedule the transfers for the day after your salary usually arrives. Saving goes out first, before you have a chance to spend it, so it no longer depends on how much willpower you have left at the end of the month.
Salary dates shift because of weekends and public holidays. If your salary sometimes arrives a day or two late, date the transfers a day or two after the latest normal arrival, so a transfer never runs before the money is there.
Put recurring bills on GIRO or a standing instruction from the bills account. That covers things like your phone, internet, utilities, insurance premiums, loan repayments and town council charges. If you pay rent to a person, set up a recurring transfer to them.
Set every credit card to be paid in full automatically each month, from the account that funds that card's spending. Interest on an unpaid card balance is usually far higher than anything your savings earn, so one forgotten payment can wipe out months of careful saving. Paying in full by default removes the risk of forgetting.
Many Singapore bank accounts pay bonus interest only if you meet certain conditions. Common ones are crediting your salary to the account, spending a minimum amount on the bank's card, paying a set number of bills by GIRO, and keeping or growing your balance. Moving money to another bank can break one of these, and the lost bonus can cost you more than the new setup is worth.
Account terms change, so check them on the bank's own product page each time. If your design puts a condition at risk, change the design: keep the bills account at the same bank, or move your savings into a sub-account at that bank instead of to another bank.
Darren (an invented example) uses the spending plan from lesson 2.2. His salary of S$4,200 lands in his main account on the 28th. He keeps that main account as his bills account, because his bonus interest depends on his salary landing there.
On the 29th, three transfers run: S$500 to his savings account, S$300 to a pot inside the savings account labelled irregular costs, and S$1,570 to his spending account. That leaves S$1,830 in the bills account (S$4,200 minus S$500, S$300 and S$1,570), which is exactly what his fixed costs come to.
From the bills account, rent goes to his landlord by recurring transfer. His parents' allowance, phone bill, study loan and insurance premiums go out by GIRO over the month. His credit card is paid in full every month from the spending account, because that's where its spending is budgeted. Any tutoring income goes straight to savings when it arrives.
Drawn on paper, his flow is one box for salary with four arrows leading out, plus a few smaller arrows from the bills account to the people he pays.
Draw your own the same way: a box for your salary, an arrow out to each account marked with the amount and the date, and arrows from the bills account to each person or company you pay. Your flow will have different amounts and maybe a different number of accounts, but it should be just as easy to read as Darren's.
Draw your payday flow as boxes and arrows: salary coming in, then each transfer with its amount and the account it goes to.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).