5 steps to create a budget that works for you

Managing your money wisely starts with a solid budget. Whether you're saving for a home, planning for retirement, or just trying to keep up with daily expenses, a structured budget helps you stay on track. In a high-cost city like Singapore, understanding how to budget your money effectively is crucial for financial stability and long-term security. This guide will walk you through five simple steps to create a budget that works for your lifestyle.

How to create a budget

A good budget ensures you’re covering essentials, saving for the future, and still having enough for life’s little joys. Follow these five steps to establish a budget that works for you.

Step 1: Calculate your take-home pay

Before you set up a budget, you need to know exactly how much money you have to work with. In Singapore, your take-home pay (net income) isn’t just your salary—it’s what’s left after CPF contributions, taxes, and other deductions.

Here’s how to calculate it based on your income type:

• Salaried employees: Your employer deducts 20% of your salary for CPF (Central Provident Fund) and contributes an additional 17%. You’ll also need to factor in progressive income tax, which increases as your earnings grow.

• Freelancers and gig workers: Since CPF contributions aren’t automatic, you’ll need to set aside Medisave contributions yourself. Deduct your business expenses and estimated taxes to determine your actual take-home income.

Knowing your true net income gives you a clear picture of how much you can allocate to daily expenses, savings, and investments.

Step 2: Pick a budgeting strategy that suits you

Budgeting strategies vary based on personal habits and financial goals. Popular methods include:

• 50/30/20 Rule: Allocates 50% of income to needs, 30% to wants, and 20% to savings and debt repayment:

  • 50% for needs – rent, bills, groceries, transport

  • 30% for wants – dining out, shopping, entertainment

  • 20% for savings and debt repayment

• Zero-Based Budgeting: Assigns every dollar a specific purpose and allocates all of your income to specific categories like rent, food, savings, and investments, ensuring that by the end of the month, your income minus expenses equals zero. 

• Envelope System: Ideal if you tend to overspend on certain expenses. You set aside cash (or use separate bank accounts) for different spending categories—once the allocated amount runs out, you stop spending in that category.

Choose a method that fits your lifestyle, and don’t be afraid to tweak it. If your income varies, focus on covering essentials first and adjust the rest as needed. The best budget is one that’s realistic and sustainable.

Step 3: Keep track of your spending

Sticking to your budget starts with understanding where your money goes. Use budgeting apps like Seedly and MoneyOwl or bank tools such as DBS NAV Planner to categorise expenses and spot spending patterns. A simple spreadsheet can also do the trick if you prefer a manual approach.

Make it a habit to review your spending at least once a week. If you notice overspending in certain areas — like dining out or online shopping — adjust your budget accordingly. Redirecting those funds toward savings or debt repayment can help you stay on track with your financial goals.

Step 4: Set up automatic savings 

Make saving effortless by setting up a GIRO transfer from your salary into a high-interest savings account like OCBC 360, UOB One or DBS Multiplier. Prioritise building your emergency fund, and if you're investing, automate contributions to platforms like Syfe or StashAway to grow your wealth passively.

Step 5: Review and adjust your budget regularly

Life changes — so should your budget. Whether you're getting married, buying a home, having a child, or switching jobs, your financial priorities will shift. Adjust your savings, spending, and investment allocations accordingly.

Avoid lifestyle inflation by resisting the urge to increase expenses just because your income rises. Instead, direct extra funds into savings or investments to build long-term financial security. Review your budget every three to six months and refine it as needed to ensure it aligns with your current financial situation.

Adopt a simple budgeting plan

A straightforward budgeting approach divides your income into three main categories: needs, wants, and savings. This structure ensures financial stability while allowing flexibility for lifestyle choices.

Allocate up to 50% of your income for essentials

Necessities take up a significant portion of the average Singaporean’s budget. Essential expenses may include:

• Housing: HDB loan repayments, condo mortgage, or rent.

• Groceries: Household food and essentials.

• Utilities: Water, electricity, and mobile/internet bills.

• Transport: Public transport costs (MRT, buses) or expenses related to car ownership.

• Healthcare: Insurance premiums, medical check-ups, and medications.

If your essential expenses exceed 50% of your income, look for ways to cut costs—such as choosing public transport over private vehicles, opting for cost-effective mobile plans or refinancing your mortgage.

Set aside 30% for lifestyle choices

Separating needs and wants is key to maintaining a balanced budget. This portion of your budget covers non-essential expenses that enhance your quality of life, such as:

• Dining out at restaurants and cafés.

• Entertainment, including streaming subscriptions and movie outings.

• Travel expenses for holidays or weekend getaways.

• Gadgets, fashion, and personal indulgences.

Singapore's high cost of living means that overspending in this category can limit your ability to save. Being selective with discretionary spending — like choosing home-cooked meals over frequent dining out — can help you build financial resilience.

Dedicate 20% to savings and debt repayment

This category helps you secure your financial future by building wealth and reducing liabilities. Key components include:

• CPF & SRS contributions: Mandatory CPF savings for retirement and voluntary SRS contributions for tax benefits.

• Emergency fund: Setting aside three to six months’ worth of expenses for unexpected financial setbacks.

• Investments: Growing wealth through stocks, ETFs, REITs, or other financial instruments.

• Debt repayment: Paying off personal loans, student loans, or credit card balances to reduce interest costs.

By consistently saving and managing debt, you build financial security and create opportunities for long-term wealth accumulation.