It has been quite a few years since I first learnt about the term Financial Independence, Retire Early (FIRE) and the FIRE movement has gained significant traction since then. The appeal of the FIRE movement to me is primarily about the freedom to choose work on my own terms, and very much less about retiring early. I would very much like to continue working in some capacity even if I have achieved any form of FIRE. How does a budget fit in?
To achieve FIRE, I can’t simply pluck numbers out of thin air and go for absolute numbers such as saying $1 million bucks would be enough. Most resources would advise running the numbers and use x times of annual expenses as a gauge. Needless to say, accurate expense tracking would play a big part for folks who are in the FIRE movement.
Lucky me! I have been engaging in the practice of budgeting using You Need A Budget (YNAB) for quite a few years. Each year, I would refine and improve upon my budget to make it better. As such, I have an extremely good idea of what I’m spending on, not just on a monthly/yearly basis, but also big-ticket items such as new spectacles or laptops that probably happen once every few years. Any budgeting app will work, even an Excel file!
YNAB Has 4 Rules
- Rule One: Give Every Dollar A Job
- Rule Two: Embrace Your True Expenses
- Rule Three: Roll With The Punches
- Rule Four: Age Your Money
Rule One: Give Every Dollar A Job
If one is in dire situations, the key thing to do at this point is to prioritize. Pay down high-interest debts first , if any. We only use money that we have, and each dollar has a specific job to do and is reserved for what’s important.
Rule Two: Embrace Your True Expenses
It is all about being truthful about life. Things breakdown. Emergency medical expenses. One-off event that crushes the budget and makes everything go haywire. That’s part and parcel of life! We simply breakdown large but rare huge expenses into monthly, smaller amounts.
Rule Three: Roll With The Punches
Regardless of how well we plan, very often life throws a spanner at us and derails everything in spite of the most well-planned budget fro Rule Two. Well? Roll with it. Re-allocate money from categories that has some to spare! You’d be amazed at how well it works.
Rule Four: Age Your Money
Over time, we build up enough buffer not to live pay-check to pay-check. This month’s income will eventually is meant for next month’s expenses. To avoid living pay-check to pay-check and this happens when one can retain 100% of this month’s income (let’s say my pay day is on 15th Feb) and budget it entirely for March’s expenses.
I feel that budgeting and tracking expenses is critical to the FIRE movement. This is how we know with a high level of confidence exactly how much we need to maintain a certain quality of life in future.
My YNAB Budget Template For 2020
Before going into the actual budget, I feel that it is important to set the correct background context. More than once, I have chanced upon blogs, both local and global ones, and had trouble “reconciling” what the person was writing about, because there is no reference profile to based it on.
Below is my profile –
- Family : Dual income, no kids
- Property : 4-room HDB (bought when I was 29)
- CPF FRS achieved at 37 (last year)
I can’t remember which version of my budget I am using now. It has been refined many times over the years, and it didn’t require much modification from my 2019’s budget.
I know it works for me because 2019 has largely been a stress-free year monetarily. There were no budget-crushing events and one-off events that did come up e.g. parent’s medical-related expenses, wedding dinners, spoilt metal-gate etc, I simply used money from sinking funds and rolled with the punches. Also, note that the budget is based entirely on monthly take-home pay and does not consider annual wages (AW) such as bonuses. I do not rely on bonuses to address shortfalls. Slowly but surely, we would eventually inch towards our goal.
It may sound simple in theory, but some of us face difficulties with budgeting, especially so for those who need to do it the most. Budgeting is in fact, one level higher than tracking expenses. When we track expenses, we establish patterns and gain awareness as to where our money is going. Inaction will not help if we do not change our behavior. Tracking expenses allows for the crafting for a realistic budget, and gives insights to how it can be improved.
Below are the categories that I currently have configured in my YNAB budgeting app.
Category : Home
- Monthly Food (and Misc) – By far the largest category. Basically money spent on food when my wife and I have meals together, lots of Grab Food, grocery, toiletries and basically anything that is classified under household expenses (excluding bills).
- Home Bills : SP Services (gas, water, electricity), Town Council, StarHub internet and Google One. Spotify and Netflix is free, courtesy of MCO Visa Card.
- Home Maintenance / Air Con Servicing : Unfortunately, my apartment has an issue with air-conditioning and piping that requires regular servicing to prevent potential leaks.
- Home Buffer / Emergency : For one-off items when stuff at home breaks down. A few months ago, my door knob came off and it required replacing. Stuff like a brand new TV or rice cooker etc would come into this category.
- Grab / Gojek : Self explanatory, voom voom.
Category : Daily
- Food : Money that I spend on breakfast and lunch on work days.
- Bus / MRT : Self explanatory tap-tap beep-booop.
Category : Non-Daily
- Shopping : Most of the time, the money goes to clothes and shoes for work but really, anything that I wants to spend on, such as mobile phones, e-books, Steam games etc. To be clear, I have this category doesn’t mean I spend it. There are months when expenditure is zero.
- Pak Tor : Dating with my wife. Movies, drinking sessions, comedy nights – stuff like that. *heart*
- Social / Weddings : Gatherings with friends and (ex)colleagues cost money. So does wedding dinners – luckily, those happen only once in a while.
- Work-related : Small expenses at work, sometimes for stuff that I needed to buy. Other items may be meant for quality-of-life improvements or efficiency related, such as adapters, SSD, etc.
- Bill (Mobile) : SIM-only plan with caller ID. Cheapest possible.
- Bill (Insurance) : Term, critical illness, hospitalization, etc. Don’t skim on protection!
- Charity (Donations) : Self explanatory.
- Charity (World Vision) : We sponsored a really awesome kid in the region. It is a ten-year collective effort which gives the children of the community better education, and in turn they can acquire skills to eventually find better work to exit the vicious cycle.
- Parents Allowance : Self explanatory.
- Buffer Fund : To catch anything that has fallen through the cracks.
Category : Wellness
- Medical : Caters for the monthly medication that I’m on, plus a little bit extra for the rare visits to the GP. I usually go to the polyclinic though.
- Dental : Dental costs can be rather high so this serves like a sinking fund where a little bit goes in here every month.
- Optical (Glasses) : I make a new pair every few years. Not cheap.
- Optical (Contact Lens) : Daily usage. Not optimal from a cost POV but there are many instances where I value quality-of-life over price. This is one of them.
- Grooming (Hair Cut) : Self explanatory
- Grooming (Toiletries) : Contrary to popular beliefs, it doesn’t take a lot for basic grooming. Moisturizer, face wash/scrub, hair gel, etc. One of the reasons I don’t look my age. Bought so many hair gels from Japan at one go that the seller included a “thank you” card.
Category : Sinking Funds / Special Use
- Wife : Special occasions, Valentine’s day, birthdays, anniversaries etc. *heart*
- Shop & Earn Miles : Category to track online shopping which I pay in advance for my wife i.e. Turtle credit card.
- Family : For anything related to my family, typically events like birthdays etc. Siblings would chip in our share of expenses.
- New Computer : A brand new machine typically lasts me for 5 years, and I mean a minimally $1,500 work-horse plus graphics card that I can play MMORPGs with.
- Chinese New Year : Annual affair, so I prepared a specific category.
- Income Tax : Self explanatory. *vomits blood*
Category : Travel Lust
- Misc : Annual travel insurance plan and random stuff (giant inflatable unicorn, new luggage case etc) that’s travel related.
- Travel : Expenses associated with actual trips e.g. accommodation, flights, itineraries, food, transport, souvenirs etc.
- Getaways : When we don’t want to spend too much but wants a short escape to JB / Batam / Bintan. Hotels in Singapore are too expensive and staycations are seldom value-for-money. Might as well do some shopping overseas along the way.
- Air Miles : Money spent during the process of chasing air miles. This would include fees for business flights redemption and admin fees for using Citi-Pay-All etc.
Category : Blog / Online
- You Need A Budget (YNAB) : For my budgeting software. As a long time user, I am grandfathered onto the legacy price of US$45 per year. The current price is at US$84 per year, which I’m not terribly sure if it offers great value for money.
- Blog and Services : Running blog(s) with traffic costs money. Domain names, web host, SEO keywords data, courses for constant education to learn about insider tips/tricks.
Category : Investments
- AutoWealth : Monthly deposits into my robo-advisor.
- General : My DIY picks because it is fun!
- War Chest : For when the market tanks, like .. now?
- Crypto : Crafted an alternative stream of income. YOLO!
After Budget – End Game ?
That concludes the list of all my budget categories. To be honest, many of the categories incur zero expenses for most months. The categories are there to ‘collect’ money in them so that when the need arises, I’ll simply dip into the bucket and use them. They also offer a lot of flexibility when I need to roll with the punches.
I don’t segregate physical bank accounts because my budgets are accurate, and I know exactly how much I have at all times. My budget categories serves as virtual buckets instead.
Because of the nature of my budget, there is no need for me to determine a fixed amount each month e.g. $3,000 and post monthly expenses on whether they went under/over. Every month, I’ll see the same budget. If needed, budgeted money in categories get moved around, that’s all.
At this point, it would be important to re-highlight my profile to give the proper context. My wife and I are basically “dual income, no kids” so that explains the lack of certain categories a normal family would otherwise have. Also, we don’t pay any cash for our HDB loan because we took a 30-year loan. Nope, no car either – golden handcuffs aren’t my thing.
We can easily pack-up and go if we wanted to.
The idea is fairly simple. I classify the income that I’m currently getting from my job as “active” income. Anything else I’m making money from (portfolio, blog, side-hustle, etc), I classify it as “alternative” income. I focus on growing alternative income to cover living expenses such that eventually, even if I were to give up my “active” income, life would simply go on.
I get the feeling that a lot of people write about their end-goal in monetary ($1M65) or abstract (I don’t have to work) terms but not many share about what they want to do with their lives. Personally, I have a pretty good idea of what I would do in terms of working towards Barista/Coast/Slow FIRE. I was already doing a lot of those things when I was deep in so it isn’t a problem for me to take action. I’m simply .. doing it again LOL.
The fun part is in putting every single component together! Let’s assume I have three set of budgets for different thresholds :
- Luxe Life (the budget you see above i.e. 100%) — YOLO
- Cai Png Life (75%) — Coasting
- Zombie Apocalypse Life (50%) — Survival mode
Upon hitting CPF FRS (which I did last year), the idea is that even without further contributing to CPF, the amount would keep pace with inflation and the annual increase via interest earned i.e. the idea of Coast FIRE. Retirement income is (somewhat) catered for. Healthcare and medical insurance for old age will continued to be maintained. I have a HDB apartment so I have a place to stay at. See where we’re getting now? We are basically eliminating unknown factors from the retirement equation so that even if somehow we managed to completely mess up our lives from 40-65, there is still a basic safety net to fall back on.
Now, hypothetically, if we can omit (yippee) the Investments category, let’s assume that Luxe Life is at a fairly reasonable amount of $3,000. Don’t be ambitious, start small. Where is the $3,000 going to come from? Well, maybe our investment portfolio can generate $1,500 monthly? ($300k @ 6%) The other $1,500 can be easily obtained through part-time and freelance work if we’re in Singapore i.e. the idea of coasting at high-freedom, low-stress jobs just to make up expenses.
Or perhaps, we want to experience the life of digital nomads for six months and camp out in the sanctuary of northern Thailand (Chiang Mai etc) instead. $1,500 from investment portfolio and $1,500 by renting out our HDB apartment. Extra pocket money can be earned through online work such as blogging income.
Or perhaps .. the possibilities are endless 🙂
This whole FIRE movement thing? Every component (investment, budgeting, insurance, property, commitments) is inter-connected! Having a highly detailed, accurate and battle-tested budget is an important cornerstone to my end game. Maybe I have written enough to inspire someone to start budgeting?
Announcement : I closing my Telegram account and groups because I will be terminating the SIM card linked to that account. Please head over to my Discord server – no registration required! As always, open to direct message (DMs) if you want to chat.