4 Challenges of Budgeting in 2021

Stating that “2020 has been a tough year” is an understatement. Words cannot describe how much we have been affected by the past year. I, for one, was tasked to let go of employees due to financial constraints. It was not easy! It was one of the hardest decisions that I had to tackle because I have seen these people grow. Moreover, I felt responsible for their well-beings too. However, downsizing was essential for the company to survive.

Our stories may vary, but one thing remains the same. We have all endured the physical, mental, and financial toll that came with the pandemic. As we adapt to the “new normal”, we come to realize how challenging it is to keep a budget. You not only have to fight the urge of spending money, but you also must follow the budget despite unforeseen hurdles.

On that note, here are some of the common challenges that you may experience as you establish your budget.

#1: HIGH COST OF LIVING IN SINGAPORE

The cost of living in Singapore is one of the external factors that you have consider when making your budget. According to the Economist Intelligence Unit’s Worldwide Cost of Living (WCOL) survey conducted in 2020, Singapore ranked fourth in the global list of the most expensive cities. The WCOL is a bi-annual survey that compares more than 400 individual prices across 138 products and services in over 130 cities worldwide. Zurich, Paris, and Hong Kong preceded Singapore.

Whether you are a young working adult or a foreign migrant worker, you must set a realistic amount for your spending each month. Take each financial category into consideration. For instance, you should have at least S$700 to S$1,500 a month if you are renting a space. If you are eligible to purchase an HDB property, you should set aside at least S$1,500 to S$3,000 a month. Your daily expenses and your overall lifestyle may change to fit your budget.

#2: LABOR-INTENSIVE TRACKING SYSTEM

Many people are afraid of establishing a budget due to the labor-intensive tracking system. Tracking your spending and income may seem like a chore at first, but you will be more comfortable as time passes. Start by tracking your receipts and other spending through a notebook or a spreadsheet. The rise of apps paved way for computer programs that are dedicated to tracking your spending. Find an app that works for you!

Being diligent with noting down your expenses takes practice. If you forget to write down important receipts, inaccuracies in your budget may occur. You may notice that your savings account depleted without knowing where your money went.

#3: DIFFERENCES IN CASH FLOW MANAGEMENT

The means of getting your income can affect your budget. What is the frequency of your paycheck? The first company I worked for paid us every end of the month. In contrast, the last company I worked for paid its employees every two weeks. Getting your paycheck once a month can entail different issues.

For some people, they experience stress as they wait for the next paycheck to come. It is hard for them to make ends meet because they see their money disappear in the first two weeks alone. These scenarios highlight an issue of cash flow management.

Waiting for your next paycheck can cause stress and anxiety. If you are paid once a month, consider dividing your income per week. Allocate enough money for the remaining weeks by keeping them in your savings account. Doing this will enable you to create a system that resembles being paid on a weekly basis.

#4: EXPENSES EXCEED INCOME

Many families have been painfully affected with job loss, reduced income, and prolonged unemployment in the past year. Recovery takes time. However, our bills remain the same. The effects of pandemic and the limitations in our income will greatly affect how we budget our money in the year 2021.

Image Credits: pixabay.com

As I leave my full-time job this month, I will need to take serious lifestyle changes at heart. The first step is to eliminate all unnecessary spending. It is important to focus on the necessary expenses such as rent, food, healthcare, and transportation. The next step is to carefully track my expenses with budgeting tools. Lastly, it is important to become flexible when it comes to budgeting and to adjust my spending depending on my needs and income streams.

Cutting down one’s expenses is a sensible solution for the time being. Finding a permanent solution to this…is the challenge.

Sources: 1, 2, & 3

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Fundamental Rules Of Budgeting

As you gloss over the pages of old personal finance books, you will realize that they stress on the importance of creating a budget and sticking to it. Poof! All your financial problems will be solved in a snap. However, life is not as simple as that.

Budgeting is the process of creating a financial plan based on your estimated revenue and expenses over a period. It is a complex task that takes your entire financial profile into account. It is up to you to embrace the process!

On that note, here are the fundamental rules of budgeting.

#1: BE HONEST WITH YOURSELF

Awareness of how much money comes in and how much you spend will enable you to pinpoint your spending habits. Be honest with yourself! You will be surprised that everything adds up, once you keep track of your money on a regular basis. Start by writing down your expenses for a week and continue. Include your daily coffee runs and Netflix subscription. You can use online budgeting tools to help you monitor your money.

#2: BE PREPARED TO CHANGE

The only permanent thing in this world is change. Your efforts of controlling your environment will be put to waste because change is inevitable. If you reached the end of the month and noticed that you are struggling to pay bills, something needs to change. Alter your budgeting strategies and identify which categories you can cut down on. Fortunately for you, small changes can make a big difference.

Your income, expenses, and priorities will change over time. You must adjust your budget accordingly.

#3: LEARN SELF-CONTROL

Within my immediate social circles, my partner is the primary model for self-control. He steers away from luxury and focuses on strategies that make him a savvy spender. He practices delayed gratification too. Learning self-control can help you accomplish your realistic budget.

If you are lucky, your parents or teachers taught you this skill when you were a child. If not, you will learn the importance of delaying gratification. Despite the tempting nature of credit cards, it is better to wait until you have saved up the money for a purchase. You do not want to spend the rest of your years paying for your credit cards alone!

#4: USE CASH WHEN NEEDED

Notice your spending habits. If you are constantly overspending on a budget category, consider having an envelope system. Use the allocated cash from the envelop and stop spending once it runs out. It is the ultimate accountability strategy.

#5: CREATE GOALS

Be realistic when it comes to your budget and your priorities. Whether you are paying off student loans or building an emergency fund, you need to focus on the goal. Knowing the reasons behind why you are saving and why you are making sacrifices will help you sustain your budget.

#6: PROTECT YOUR WEALTH

Ensure that your hard-earned money does not vanish by taking some safety measures. IF you are renting a flat, consider getting an insurance to protect your belongings from fire or burglary. If you just bought a laptop, sign-up for the warranty. This will help you cushion the costs of repairs.

Image Credits: unsplash.com

You must educate yourself on budgeting and handling money. The more you learn about handling money wisely, the more concrete your reasons for budgeting will be. Good luck!

Sources: 1 & 2

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Foundations of bankruptcy in Singapore

petition for bankruptcy form

Bankruptcy is a big word, and some people fear it. But if one were to be familiar with its foundations, maybe it wouldn’t be that terrifying.

According to Investopedia, bankruptcy is a legal proceeding in which a debtor and a creditor resolve debts through the court system. The debtor has its debt resolved while the creditor obtains repayment based on the debtor’s available assets.

In Singapore, section 61 of the Bankruptcy Act states that debtors may be declared bankrupt when a debt has fallen due and is worth at least S$15,000.

For folks considering bankruptcy, here are the basics you should be aware of.

After declaring bankrupt

Once you are declared bankrupt, you gain exemption from your creditors’ legal actions intended to reclaim debt from you. A public servant called an Official Assignee (OA) would examine your financial capabilities and design a suitable repayment plan.

Think of it as your bankruptcy supervisor.

Your OA will ensure that you make monthly contributions on your road to being discharged. They will set up this monthly plan after evaluating your financial resources, income and credentials, household expenses, and the economy’s overall status.

Wave goodbye to your assets
car and private house

Image Credits: EdgeProp

During the bankruptcy proceedings, your OA will sell any assets you possess to pay off your creditors. This can include items from artworks to furniture and even sentimental gifts.

The OA will not sell off any “protected assets”, which include:

  • HDB flats if the owner is a Singaporean
  • Central Provident Fund (CPF) contributions
  • Life insurance policies if it benefits the bankrupt’s immediate family members
  • Compensation awarded legally due to personal injuries or wrongful acts against the bankrupt

While it may be tempting to hide or dispose of your possessions quietly, lying to your OA or evading the procedure on purpose can lead to fines of up to S$10,000 and/or up to 3 years in prison.

Not worth it, ladies and gentlemen.

Ready for restrictions on daily activities

Bankrupt persons in Singapore are subject to various duties and responsibilities. Gambling, travelling, seeking credit, or managing businesses while involved in bankruptcy proceedings can lead to monetary fines or jail time.

These restrictions exist to prevent bankrupts from exploiting corporate structures, concealing income, hiding assets, or generally cheating the system. However, the OA can ease or accommodate these restrictions.

Their willingness to do this is based on your level of cooperation. If you are engaged in the bankruptcy process and consistently settling your debts on time, the OA is more likely to view you as reliable and ease those limitations.

Especially so in the business realm, full cooperation, including the provision of requested documents promptly, is the single best strategy for getting those restraints lifted as soon as possible.

If you feel that the OA is not treating you fairly or is imposing ridiculous restrictions, the ideal course of action is to seek the court’s review. Simply ignoring the limits is likely to end with criminal charges against you.

Look forward to the discharge
bankruptcy documents in Singapore

Image Credits: The Straits Times

Bankruptcy is not forever. Eventually, your debts will be paid, and you will be discharged from them. However, a discharge is dependent on the fulfilment of specific conditions and approval from either the OA or the High Court. 

First-time bankrupts with debts of less than S$500,000 may be discharged after 3 to 7 years. For repeat offenders, it will take between five and nine years.

There is a well-known belief that a bankrupt is automatically released after three years, but this is not true. To speed up the process, cooperate fully with the OA and make sure you’re keeping up with your monthly repayment amount.

Bankrupts who have debts exceeding S$500,000 will need to apply to the High Court to seek an Order of Discharge. However, the courts will examine the interests of all involved parties before making a decision.

Noncompliance with the OA or any violation of behavioural restrictions will make the court reluctant to dismiss your bankruptcy.

Resume life after bankruptcy

Being discharged from bankruptcy is not necessarily a return to normal. At least not immediately. Depending on the circumstances of your bankruptcy, the courts may require you to entrust any new properties to the OA if debts remain after discharge.

Should the owed amount be repaid, bankruptcy can only be removed from your records after five years. If not, the bankruptcy status will remain in your public record permanently. Employers and creditors will have access to this information, so this should be a huge red flag for concern.

Final thoughts
Empty wallet

Image Credits: AsiaOne

Bankruptcy is not a walk in the park, but it is not the end of the world too. The Bankruptcy Act is designed to be fair to both debtors and creditors and focuses on providing rehabilitative measures to the bankrupt.

For the severely indebted, bankruptcy can provide a mechanism to help recover financial health and gain a second chance at life. Be sure to cooperate fully with the courts, and the OA and the law will likely give you more space to breathe.

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Get a free POSB Smart Buddy Watch with Limited-Edition Strap when you open My Account for your kids

Kids Online Account Opening Promotion

Saving is a habit that takes time to build. It’s never too early to start teaching your child the importance of saving and spending wisely. With My Account, you can keep track of how much you save and add features to meet your growing needs.

Start by opening a My Account for your child and receive a POSB Smart Buddy Watch with a Limited-Edition Strap (Worth S$45) to keep track of their daily spending.

Reward:

Receive a POSB Smart Buddy Watch with a Limited-Edition Strap (worth up to S$45)* when you deposit and maintain average daily of S$1,500 for a 6-month period.

*Limited to first 600 redemptions only, while stocks last.

How to be rewarded:

Promotion period is from 2 March 2021 to 30 June 2021.

Please refer to the Terms & Conditions and Frequently Asked Questions for more details.

My Account for your child

For existing POSB/DBS account holders, you can apply for a joint alternate My Account with your child online1.

1Applicable to children below 16 years old, and do not own an existing joint alternate My Account

Apply now

Please prepare the following required documents prior to your application.

About POSB Smart Buddy

POSB Smart Buddy is the world’s first in-school savings and payments wearables on your child’s wrist. It lets your child tap to pay in school and at selected merchants, check on balances, and track fitness levels.

As a parent, enjoy greater convenience in managing your child’s finances and encourage smart living and saving habits – all with an accompanying mobile app.

Find out more

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7 red flags that show you’re spending way too much money

an asian lady holding on to shopping bags

Do you believe that one of the foundations of achieving wealth is saving as much money as you can? A highly effective method of building your savings is to live below your means, and we can’t emphasise that enough in our articles.

Just in case you get us wrong, this doesn’t mean taking a vow of poverty and selling all your possessions away. It just means actively monitoring your spending and watching for ways to spend less.

Watch out for these red flags that may indicate you’re spending way too much money.

#1: Spending above your salary

Spending more money than you make is a bad habit. Overspending can put you in debt, which is incompatible with your aim for financial freedom.

To better evaluate your spending, make a list of all your monthly expenses – housing, food, bills, memberships, and subscriptions – and compare it to your monthly income. If your expenditure exceeds your salary, you must find ways to increase your earnings or decrease your spending.

For freelancers with variable incomes, this can be challenging. One strategy is to calculate your average monthly payment over a rolling 12-month period and use that number to budget. You may also use a more conservative approach by taking your lowest-earning month as a baseline to account from.

#2: Budgeting based on your pre-tax income
Budgeting

Image Credits: wincofoam.com

Constructing your budget on your pre-tax earnings can be a huge mistake. If you’re a Singapore Citizen (SC), Singapore Permanent Resident (SPR), or a foreigner who has stayed for 183 days or more, you would be well aware of Singapore’s income tax requirements.

The more money you earn, the more you pay in taxes. This means our take-home pay is less than our hourly rate or our salary would suggest. It is, therefore, unwise to craft your budget on your pre-tax income since you do not get to keep everything you earn.

Build your budget around your take-home pay minus the taxes for a more accurate financial review.

#3: Oustanding balances on your credit accounts

Having credit cards to supplement your income can be highly attractive. However, unpaid debt on your credit lines is detrimental to your financial health.

According to some local findings, the average interest rate on a credit card on our sunny island is about 25%. If you do not pay off your credit card in full every month, the remaining balance will begin accruing interest, and this may grow out of hand if not kept in check.

Debt can increase rapidly even before you realise it. Be sure to pay off your credit balances in full at the end of each month, and if you can’t, at least go past the minimum sum required to “get by’. This is because merely making minimum payments every month is a dangerous practice.

Should you find yourself unable to do so, it means you are spending too much on credit.

#4: Having a negative net worth
net worth

Image Credits: corporatefinanceinstitute.com

Investopedia defines net worth as the value of all of your assets minus your liabilities. If your net worth is negative, you owe more money than you own. Makes sense? If not, read that again.

This is not a desirable state of affairs for sure. To know your net worth, you can calculate it using Moneysense’s Net Worth Calculator. The numbers will help you take stock of your current financial situation.

For those who are severely indebted, with a net worth of – S$15,000 or less, you may wish to consider examining Singapore’s bankruptcy laws to help you repair your finances and start afresh. 

#5: Housing expenses over 40% of your gross income 

Experts suggest that your housing expenses should not exceed 30% to 40% of your monthly income. For example, if you bring home S$4,000 a month, your monthly housing budget should be somewhere between S$1,200 and S$1,600.

To find out your ideal housing expenses, simply multiply your monthly income by 0.3 or 0.4 to see what your monthly budget for housing expenses should be. If your rent exceeds this number, you may need to try and find a less expensive apartment and not survive just on your savings.

#6: Spending to keep up with social influences
beautiful-girls-in-sunglasses-in-a-car

Image Credits: motors.hongsehgroup.com

In our current age of Instagram and TikTok, it is easy to get swirled into the world’s neverending wants. We may see influencers, friends, or family members buying new items or taking expensive staycations and begin to wonder if we should do the same.

But before we buy that latest device or spend money on an extravagant restaurant date, we must ask if we’re doing this for ourselves or to impress someone else on the worldwide web? Is it worth finding money in the budget to keep up with appearances?

Spend your money wisely and avoid the trap of wanting the latest of everything because that will only lead you down the point of no return.

#7: Your savings are literally zero

An absence of savings is a common-sense indicator of excessive spending.

A healthy savings account can help you survive unexpected expenses medically related and help you prepare for significant life events like starting a family or even early retirement.

If your savings account is empty or underfunded, you are spending too much and saving too little. Finding small opportunities to save money will help get your spending under control and your savings back on track.

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