Thursday, July 25, 2013

Managing my personal finances

Over the years, as i learn more on how to manage my personal finances, it became more fun to me. Regular savings have become a habit and i have opened several bank accounts to allocate my money respectively. I have a spending account, an investment account, an emergency fund account and a monthly savings account.

This is how i allocate my money:

1) Allocate around 6-9 months of my expenses into an emergency fund account.
An emergency fund is important in case i need the money urgently. This is strictly for use during emergency time when i have not enough cash.

2) 60% of my monthly salary to my investment account
This account is used to buy stocks of companies or invest in funds

3) 15% of my monthly salary to a savings account for higher interest.
This account is to earn higher interest rates than a normal savings account. There is no lock in period and i can take out my money anytime. This also serves as an opportunity fund where if a stock market crashes, i have extra money to buy undervalued stocks. I use this fund to donate to charity also.

4) The rest of 25% for spending account
If there are leftovers in my spending account, i can accumulate to a certain amount and spend on luxuries. I pay the premiums for my insurance policies from this account also.

As i have more money over the years while working, it gets more and more exciting to see my account balances grow. Saving money is part of my life now and i do not find it hard anymore. When i first started out, saving money was hard as we're more prone to spend more money. I learnt that in order to have a financially free life, one thing we must learn is to have delayed gratification. This means paying myself first by saving and then spend the rest. Living a simple life helps a lot too. I prefer life to be simple although i do spend on luxuries like eating out at restaurants or travelling. But still those luxuries can be done at low cost if planned properly.

Many people spend money first and then save. This is why most people find it hard to save money as most of the time they do not have much left over after spending. It takes discipline to put aside a fixed percentage of your income for savings before you even start spending. I use a free service provided by DBS bank to auto transfer money out to my various investment and savings account once my income goes in. This saves me the hassle of transferring manually every month. I do not even have to monitor where my money goes. Everything is automatic.

As my investment account grows, i can invest more easily. Investments make my account grow and there are dividends from stocks also. Money is constantly flowing into this account. I will let money in this account to compound over time and this will help me achieve financial freedom in the near future. You may be wondering why not spend some of the investment gains and dividends from stocks? I do not think i should do that as the purpose of investment is to grow the money. If i do want to spend more, then i should try and increase my income so that i have more money to spend in my spending account. If i am able to increase my income, then i don't even have to save that much anymore.

Managing our personal finances is important. I set financial targets for myself to make sure i'm on track. You can read it in my goals tab. The journey towards financial freedom is a journey in itself. You have to plan the road or else you'll get lost or get off track. This road is an exciting one and i hope to update you of my progress in years to come. I have been inspired by many people who have walked this road and accomplished what they set out for. They have shown that it is possible. If more people know how to manage their personal finances, more people can benefit from a lifestyle of financial freedom. We can get out of the rat race and truly enjoy life, not just working for money for the rest of our lives.

Related Posts:

1. How the rich manage their money that the poor and middle class do not - Part 1

2. My Goals


  1. Hi,

    You manage to spend only 25% of salary per month. This is quite a feat itself. Excellent work.

    I can only manage to save 50-60% of my take home pay given my best effort. Haha, perhaps you can share with us (in future blog post) how you manage to get good deals in buying necessarity items. e,g transport, eating, phone bills, clothing.

    1. Hi Solace,

      I live a simple life. Transport and food are my largest expenses. I'm single and no burdens to carry now. Maybe that's why i can save more. The 25% actually includes 10% that i give to my parents every month. So in actual fact, i spend only 15% of my salary :)

      25% is on average. On some months, i spend more. some months lesser. If there are months i spend lesser, i can reward myself at later months.

      Transport is a fixed cost. I spend around $70/mth on bus and mrt fares.

      Food i normally eat at coffee shops or hawker centres. I don't work in town area so food is relatively cheap around my workplace. Average i spend around $3-4 per meal on weekdays. Once in awhile i go for better food at $10-$15 a meal(about 2-4 times a month). Sometimes food is provided by my company during events or courses. And i do spend on movies also.

      Clothing i don't usually buy. Maybe once every 3 months. I always buy at a discount also. Phone bills is cheap for me as i got subsidised rate for my mobile line. My medical cost is covered by my company also.

      You can guess my monthly expenses is less than $500 a month.

  2. Hi,

    Thanks for sharing.

    I am sure many people can follow the examples that you have listed out.

    Managing Personal Financial is very important, given our current cost of living and rate of inflation.

    1. Hi Solace,

      It is possible to save money even in our current high inflation situation. Just need to have good habits of saving and learn to have delayed gratification.

  3. Hi,

    Where do you allocate Insurance expense under ?

    1. Hi MrMoneySG,

      My insurance is under my expenses account. I pay it annually.

  4. Hi,

    Thanks for sharing. Do you foresee having to change the ratio down the road? Like when you buy a place for yourself? I presume then that your Expenses budget will grow at the expense of your Investment budget? Or how would it be?

    1. Hi LG,

      Yes the ratio will definitely change if I get married and start my own family. For house, I'm not too worried as there's cpf. But other expenses for starting a family and having kids are high as well. That is why I'm saving up as early as possible now to prepare for the future. Also, it is important to increase income so that I still can have savings after that.

  5. Can I know more about the "investment account" you are talking about? I only found "CPF investment account" which requires you to have a CPF OA with at least $20K. Is there another type of "investment account" where there is no such restriction and it's not tied to CPF?

    1. Hi ADTC,

      The investment account is just another bank account which I have to buy stocks in my citibank brokerage. Its purely in cash. I use the funds there to invest in stocks.

    2. Makes sense :) Is it a citibank account?

      So the dividends from your stocks automatically get credited to this bank account?

    3. Yup, its a citibank account. My dividends get credited to my POSB account though. It was set up long time ago with CDP.