Tracking your household budget on an app, spreadsheet or notebook invites honesty and accountability.
Financial hardships during the pandemic were a reality for many people worldwide, but those with a household budget were better able to weather the storm.
A survey published by the Organisation for Economic Co-operation and Development in 2021 asked participants how long they could cover their living expenses without borrowing if they lost their primary income. The respondents came from Thailand, Hong Kong, Malaysia, Indonesia and South Korea.
Most respondents could not provide a definite answer, and those who did fear their savings couldn't cover a week's living expenses. The only ones who could reply with financial confidence were participants from Hong Kong. About 55 per cent responded they could cope with six months of living expenses, which is the rule of thumb when it comes to an emergency fund.
Household budget plans to manage your money
The savings habit of the Hong Kong respondents requires a financial discipline that can be tough to sustain. However, it can be done with a household budget plan that reflects your financial situation, lifestyle, personality and goals. Here are five types of budgets to choose from.
1. 50/30/20 budget
The numbers represent how to divide your income after taxes.
- 50 per cent: fixed costs like rent, utilities and debt
- 20 per cent: savings, which can be divided further into buckets like an emergency fund, insurance or investments
- 30 per cent: discretionary spending, such as dining out, movies, shopping
Ideal budget method for: people creating a budget for the first time and who want a simple budget planner template.
Good to know: 50/30/20 can be a financial confidence booster since it allocates money to indulgences like entertainment or shopping.
2. Cash jar or envelope system
Once funds go into the envelope or jar, you can't spend the money or use it for another purpose.
Categorise expenses and savings and put money allocated for each one in an envelope or jar.
Ideal budget method for: people who overspend and want to restrict credit card usage. Those not comfortable using digital tools may prefer to monitor spending this way instead of crunching numbers on a spreadsheet.
Good to know: determine how many bills you need in each denomination before withdrawing the cash, advises Todd Christensen, an accredited financial counsellor who provides debt relief education on MoneyFit. He warns about "the denomination effect", where people tend to spend more when cash is in small denominations.
3. Zero-sum budget
Personal finance coach Dave Ramsey puts zero-sum budget this way: income minus expenses equals zero. If there is still money after the expenses are paid, put the extra cash in an emergency fund, pay off debt or invest in savings insurance. A negative result means cutting costs or finding extra income to cover the difference.
Ideal budget method for: people who find categorising every expense in a bucket like the 50/30/20 method a challenge.
Good to know: Financial experts say zero-sum allows room for error, so people can adjust if there is an unexpected financial setback without giving up on saving.
4. Reverse budgeting
Savings and investments occupy the same financial priority level as fixed expenses like utility bills. Money goes to them first before spending on wants.
Ideal budget method for: people who feel they are living from paycheque to paycheque, find it hard to save or they have to make up for time not spent on saving or investing.
Good to know: reverse budgeting helps curtail expensive spending habits. After putting money towards savings or retirement income, you can spend any extra cash without the guilt.
5. Kakeibo method
The household budget method of kakeibo prioritises "cultural" experiences like spending money on books and museum visits.
This Japanese saving method involves writing down your income, expenses and financial and life goals in a journal. Kakeibo translates as "household finance ledger".
Ideal budget method for: people who buy items on impulse and are looking to make incremental changes to their money management habits. Users are encouraged to write reflections to instil mindful spending and savings habits. It's the Marie Kondo of household budget methods, except the "does it spark joy" comes after "can you afford to buy it" and "will you actually use it".
Good to know: Amazon customer reviews on one popular kakeibo journal talk about how writing things down makes them feel accountable. As one reviewer puts it, kakeibo "prevents excess and helps prioritise not only how to spend money but where to spend your time."
Household budget = financial security
Planning financial wellness is time-consuming, but it gets easier when you have a realistic plan about how much you earn and spend. A budget is an honest look at your financial situation and empowers you to think and act for the future.
A household budget can also give you a sense of accomplishment because it feels good to see money working for your future. If you have not yet created a household budget, it's time to take that first step towards your financial freedom.
Equip yourself with the financial skills to achieve the future you want. Finance expert Lachlan Campbell shares his advice on planning for life's significant moments in this episode of AIA Voices.
AIA Voices is a community of influential and educational voices from around Asia to talk about life, health and wellness. A platform to educate, motivate and inspire people to make positive behavioural changes on their health and wellness journey. Providing an opportunity for communities across Asia to connect, collaborate, and learn from each other. Designed to drive AIA One Billion, our ambition to engage a billion people to live Healthier, Longer, Better Lives by 2030.
Organisation for Economic Co-operation and Development (OECD). 2021. Financial consumer protection and financial literacy in Asia in response to COVID-19. [online] [Accessed on 5 September 2022]
MoneyHelper. Managing your money using savings pots, jam jars or piggybanking. [online] [Accessed on 5 September 2022]
MoneyFit. The envelope budgeting system. [online] [Accessed on 5 September 2022]
360 Degrees of Financial Literacy: The American Institute of Certified Public Accountants. Why doesn't my budget work? [online] [Accessed on 5 September 2022]
Ramsey Solutions. 2022. How to Create a Zero-Based Budget. [online] [Accessed on 5 September 2022]
Clever Girl Finance. 2022. Reverse Budgeting and How It Works. [online] [Accessed on 5 September 2022]
Amazon. 2018. Reviews on the journal Kakeibo: The Japanese Art of Saving Money. [online] [Accessed on 5 September 2022]