Budgeting : How much should you spend per month?

In the first part, we discussed about how much additional spending people tend to have. Now, we will be talking about how much you should actually be spending.

It is sisyphean and requires tremendous discipline to keep under a certain spending budget, but the task can be made much simpler if you have a detailed spending plan - and I mean DETAILED. Fret not as I have made a rough template for anyone to follow, from the super saver 省钱王 to the less financially-constrained.

Before you go onto the spreadsheet, there are several assumptions or caveats I have to clarify.

1. Ensure there are sufficient 'working capital' in place prior to embarking on the budgeting plan. This means that you have your necessary attire and shoes to go to work, a bed to sleep on, a roof over your head, Totoro soft toy to hug, your phone/laptop/iPad necessary to go about your daily life or work use.

If not, use ALL your income to establish a proper working capital prior to embarking on the budgeting plan. It is very important to establish a proper working capital so you won't feel that your budgeting plan is being interrupted because of large-cost items that you actually NEED to buy. Such examples other than those mentioned are : headphones, wallets, bags, pillows(don't underestimate the power of a good sleep) and attire-related stuff.

2. Situational cases such as BTO, personal chronic illnesses or financial obligations, and hobbies are excluded since they are statistically the minority, although they are largely unavoidable costs.

3. You do not have additional girlfriend/boyfriend/spouse expenses, nor the need to give your parents, children or anyone allowances.

4. There are no issues of going-concern, AKA you are always employed. There is no allocation or buildup of 'emergency* funds' in the budgeting plan.

HOWEVER, that is not to say that you shouldn't have emergency funds. You should always have approximately 6 months of emergency funds ready prior to embarking on savings or investment plans. So in our example cases later, about $3 to 6k.

*EMERGENCY funds means they are only used for rainy days, like seriously bad - maybe you got fired. Not when the weather is too hot and you need a bowl of Cendol or bubble tea, or your chair is not ergonomic enough and you need to buy a $500 Secretlab chair, or your speaker doesn't have enough bass, you get the idea.

First, spreadsheet for reference here :

https://docs.google.com/spreadsheets/d/1Ht4HU9gfooJGva-OAve9Xq8_-LEs2LcL09Xe0W7JJeo/edit?usp=sharing

AS we can see from the spreadsheet, an average monthly spending budget of $1000 should put you at a fairly comfortable position, most people won't even know you are on a spending budget if they are less observant. This $1000 should be able to take care of most of your needs throughout the year, taking into account replacement costs. Regarding our replacement costs, mostly coming from attire, I believe that a certain amount of savings can be squeezed out of them if you are sourcing your attire from Taobao/unbranded shops. You can then transfer these additional savings from replacements costs into replacing other stuffs in your home if required, such as headphones, cups, utensils, towels etc.

Personally, my shirts and pants are ridiculously long lasting and a decent pair of shoes should easily last you 3-5 years. The only issue with replacements is if you keep getting fatter over the years which then uhhh, try not to eat so much.

More than half of our monthly budget, $590, are going towards food. Food is a really sneaky cost since it's something that happens very regularly and we will not really put much thought to it since it is a basic necessity for survival, especially when we are hungry or stressed - think comfort food. Given the occurrences of food spending, a little saved every meal can contribute a lot over the long run. For example, saving $1 per meal, 3 meals a day, would have already saved you about $90 a month and $1,095 a year - that's another BKK trip! So think, do you really need that 加肉(add meat), 加卤蛋 (braised egg), upsize, that Bandung instead of plain water？

In my opinion, food spending is the aspect where an individual has to place the most awareness and discipline in cutting costs. It is easy to not purchase a one-off, expensive item like buffet and ice cream waffles, but it is the smaller things that will eat (heh, pun intended) at your bank balance without you realizing.

Coming to our less privileged friends, or those that just happen to start working and not pulling much dough, a budget of $500 monthly is fairly possible, including contributing to household expenses and even buying toners. As you would have guessed, food expenses really plays a big part. In the spreadsheet, the meals I have planned out in the super saver version cuts food and drinks from $590 per month to just $182 - wowz. Don't worry, your calorie count and protein can still be hit, I can prove it with my personal 'broke-boi meal plans' if needed, but I'm gonna charge you for it.

I believe the largest trade off or requirement in cutting cost would be time, effort, sucking up, and a bit of socializing. In food, we can spend a bit more time to prepare our meals the next day. It doesn't have to be a full-fledged chef meal. A simple pasta with chicken breast and broccoli would take you about 20mins - lesser than an episode of yanxi palace.

Of course prepared food that is both cheap and fast would probably not taste as good as store-bought ones, but 90% of the time they are healthier too, so cooking is really a good skill to have. If you're eating with your colleagues, it might feel a little awkward or out of place to be bringing your own food, but I doubt anyone cares since you are all eating together anyways - just don't start mocking people because they are not as thrifty as you.

For the more ambitious savers, you can also adopt this plan in order to boost your initial capital as quick as possible to get a sizable return on investments (to be explained in part 3). A budget of $500 is by no means easy to maintain and would probably not feel good, thus this is a plan which I do not expect anyone to maintain over a very long period - probably the first 3 years into your investment plan. Or else, one can also adopt this budget for a year or so to save up for a huge expense, such as a long trip, honeymoon, renovations, etc.

To wrap things up, I would say that adopting a budget and sticking to it is definitely not as easy as most would think it is, and requires serious planning, willpower and dedication. Other than breaking down expenses into as much detail as possible, one should also have a mindset of seeking cheaper alternatives always. Anytime you spend money on something, or plan to, always consider if there's a cheaper alternative or to skip it altogether.

Perspective is also crucial in your budgeting and spending. When you are initially slowly accumulating capital, your bank balance might hit new highs you haven't seen before, especially for those who just started working. Suddenly you can afford so much more that you couldn't before. Your bank balance is already over 5 digits in less than a year of work. Do not succumb to the perception of increased spending power. It will be easier to not recklessly spend if you have a targeted amount of money to put into investments - spend the excess after that.

If you really lack discipline, then invest in shorter intervals, maybe every 2 months instead of 6 (as outlined in the investment plan in part 3). Do not keep liquidity unless you have the willpower to do so.

I would recommend one to slowly ease into the budget if you are not used to such tight spending constraints. If you are used to spending $2000 a month, grabbing everywhere, splurging on cafe dates, pubs, shopping for clothes, going for carnivals, short trips and trying hipster foods often, you will definitely experience a huge backlash if you suddenly cut your spending to $1000 or $500. There is a high possibility of the plan backfiring on you and you might just dump the entire thing instead, try to perhaps cut $200-$300 per month till you reach the target.

Again, spreadsheet for reference here : https://docs.google.com/spreadsheets/d/1Ht4HU9gfooJGva-OAve9Xq8_-LEs2LcL09Xe0W7JJeo/edit?usp=sharing

Happy saving!