3 tips on how to track household expenses
Published on
12 Feb 2023
Published by
The Straits Times
Many people find it hard to create a workable household budget to keep a lid on their expenses because they are clueless as to how much they actually need in the first place.
You cannot simply put aside $3,000, for example, and try to stick to this amount every month. Doing so will just make you feel miserable when you realise that the kitty is already empty before the month is out.
By the same rationale, it is risky to assume that having a savings or investment portfolio of $500,000 or even $1 million will be sufficient for your retirement if you do not even know how much you will need every month.
Many people do not realise that the key to a good retirement does not only depend on how much you have, but also how much you spend. It is just maths – having $10 million or more will also not last very long if you live like a king and spend money like water from a broken tap.
If you want to have a solid household budget that will give your retirement plan a boost, start uncovering the one answer that may even shock you, and that is how much your household really spends each month. It is better to do something about it now than to discover it too late in old age.
Here is a checklist that will help you to audit your family’s expenses.
1. Start with compulsory or regular expenses
These include your taxes, loan payments, apartment maintenance fees plus utilities and telco bills. Most people do not fret about such expenses because they are paid “silently” each month with bank Giro or credit cards.
This exercise should remind you that you do not really have your total monthly salary to spend because a sizeable portion is already earmarked for such expenses. Even if you service your home loan with your Central Provident Fund, you should still count it, as it also eats into your retirement savings.
Income tax and mortgage payments may end after you retire, but you must still foot other bills unless you downgrade to a smaller home that reduces maintenance and utilities charges.
2. Monitor monthly spending
Many people are surprised by how much they spend on groceries, dining, medical, wellness, leisure and transport every month. It is impossible to keep count unless you order all family members to report their expenses, along with receipts where possible.
Having receipts will make the task easier so that you input all expenses at one go at the end of the month. You need to do this for a few months to see if there is a spending trend.
If you do this for only one month, one that happens to coincide with many birthdays and anniversaries, you will see high dining expenses that are not the norm.
Keeping track of your expenses over a few months will definitely unveil ways to save. For instance, if you notice that spending for dining is consistently high every month, it is time to have a family conference to cut such outlays.
If you are paying for all your children’s expenses now, your household bills will be much lower when they eventually leave home. But the other expenses will likely remain even when you retire.
3. Don’t forget insurance premiums
Such expenses deserve special attention because they eat into your retirement funds. Unless you surrender your life policies, you must pay the premiums for life. This poses a huge burden for many because retirees will not have so much spare cash after they stop working.
If you are signing up for a new policy now, ask for a fixed-term life plan so that you can stop paying premiums at say, 60, and not for the rest of your life.
The other big cost will be health insurance as the premium will balloon to $10,000 to $20,000 a year when you are in your 70s and 80s.
It is crucial to plan for such costs so that you do not end up losing the right to be treated at the hospital of your choice in old age.
Even without looking far into the future, adding all the three categories of expenses should give you a wake-up call on why you need to make financial plans for yourself.
These are just the basic expenses because other kinds of big outlays, such as replacement of major household items, renovation costs, medical fees and holiday expenses, have not been factored in yet.
You also need to have a buffer for other unexpected expenses as well as price hikes due to the kind of high inflation we are facing now.
Yes, it is hard to resist pampering yourself after a hard day’s work, but you should still make an effort to develop a habit to spend within your means.
Just like how you can get a merit bonus for good work done at the office, the reward for getting your finances in order is that you will sleep better knowing that you will always have enough money.
Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.
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