As newly-minted adults entering the workforce, we will experience the taste of receiving our first pay and start to buy the things that we’ve always wanted but could never afford as a student. I also went through this same phase when I got my first paycheck – I bought the guitar gear that I always dreamt of owning. However, when the COVID-19 pandemic hit, I started a budgeting plan for myself to keep to every month to control my expenses.
The importance of budgeting as a young adult
Budgeting Prevents You From Overspending
After planning a monthly budget, I was able to portion out the amount I was allowed to spend for the rest of the month, preventing me from overspending. Without this budget, I would not know when to stop spending and could end up depleting 100% of my income without saving any.
It is important to review your monthly budget at the end of the month to make sure you’re able to commit to what you’ve planned. If you overspend, take a look at your expenses again and make the necessary adjustments. In the event that you spend less than what you budgeted for that month, put the remainder into your savings account.
Budgeting Builds Your Emergency Fund
One of the lessons I’ve learnt from the COVID-19 pandemic is that life is unpredictable. Many people suffered a loss of income during this season. There were people who were forced to take a pay cut or go on no pay leave. Some unfortunate ones were even released from their companies. It was very saddening to hear this. A Straits Times’ article found that two out of three working Singaporeans do not have enough savings to last them beyond six months if they were to lose their jobs now.
Above all this, it is important to set aside an amount of money labelled as your emergency fund. Of course, this fund is not built overnight, so take your time in building it, but commit to it. I would recommend for you to have at least six to twelve months of income in cash saved up in this fund.
Budgeting Helps You To Achieve Long-Term Goals
In order to achieve your long-term goals, for example, saving for a wedding, honeymoon or bidding for a HDB Built-to-Order (BTO) flat, it is important to set aside some money to map out your goals where you’re able to keep track of your progress. With budgeting, it will be easier for you to decide whether you really need that pair of Gucci sneakers, the latest iPhone or the latest collection from ZARA.
Ways to budget as a young adults
Following Elizabeth Warren’s 50/30/20 rule can help you to manage your budget easily when you start your first job. At the end of every month, review it and feel free to decrease the percentage of your spending if you want to save more.
Elizabeth Warren suggests that 50% of your income will go under your needs. These include your food, tithe, bills, transportation or insurance. 30% will be categorised as your “wants” which are shopping, your entertainment and leisure. Lastly, 20% of your income will be for savings, which will be emergency funds or for your retirement.
By applying this rule, for me to strictly keep to my budget, I have two bank accounts – one for spending, the other one for saving. After receiving my pay at the end of the month, I will take out the amount that I’d like to save and put it into my savings account.
My savings account is split into two categories – I will use a sum of money for my investments and the remaining amount is kept in my emergency fund. The emergency funds will remain untouched and will only be used in case of an emergency.
In my spending account, the money will be part of my monthly expenses and I will break it down and plan how I am going to spend it.
To keep track of my budgeting and expenses, I will write it down in my notebook and review it at the end of the month.
Ways to keep track of your budget
Other than writing it down in a notebook, there are many ways to keep track of your budget and expenses.
Microsoft Excel
There are many Excel budget templates that you can download online or you can create one for yourself, totally suited to your needs!
Budgeting Apps
There are so many apps that you can use to do your budgeting and keep track of your expenses. Most of these budgeting apps like Wally or YNAB provide colorful graphs and charts to illustrate your spending habits. If you’re looking for a more in-depth review on the best budgeting apps around, check out this article by ShopBack.
For me, I have used Spendee and Seedly and they are very good and I would recommend people to use them! With these apps, you can categorize your expenses into different portions like food, transportation or shopping. When you key in a set budget that you have in mind, the app will show you how much you have left for the month and how much you should limit your daily spending. However, I’ve stopped using them as I prefer to use my plain old notebook.
Final Thoughts
Budgeting can be difficult in the first few months, and it can be challenging as you would find yourself constantly adjusting the amount that works best for you. Don’t give up and stay committed to it. With good budgeting, you are able to embrace any storms that come your way and while achieving your long-term goals at the same time.
Melvin Ang 