According to Oxford Dictionary, budget is,

An estimate of income and expenditure for a set period of time.

By creating our own budget, it helps us to set expectation on our cash flow. In general, a budget can be used to achieve the following objectives:

  1. Understand and track Income and Expenditure
  2. Enforce discipline against unnecessary Expenditure
  3. Build wealth for the future

Step 1: Understand Personal Cash Flow

First of all, we will need to understand our personal cash flow. Through a proper cash flow analysis, we will understand our total income (active and passive), as well as our total expenditure (fixed and variable). Thereupon, we will derive at our net cash flow (total income minus total expenditure).

P.S. I will highly recommend you to check out my post on Understanding Your Personal Cash Flow. In that post, it provides a deeper insight on income and expenditure.

Now, in order to limit and control our expenditure, we will devise our budget.

Subscribe to Our Newsletter & Download our Cash Flow Analysis Tool Today!


Step 2: Open a Salary account

To do so, we will need to have our main bank account. For the most part, this bank account is used to receive our pay check. For this purpose, there are a number of higher yield bank accounts that rewards the user for crediting their salary with them. In most cases, this is on the condition that some other requirements are met.

Example: DBS Multiplier Account, UOB One Account, OCBC 360 Account

To be honest, any bank account will do for our salary account, even those that earn an interest rate of merely 0.05% per annum. For the purpose of creating our budget, these are the main criteria for a salary account:

  1. Low minimum average daily balance (I don’t like my money to be locked-up) 🔒
  2. As little side requirements (to earn higher interest) as possible (I don’t like the temptation to spend more than necessary) 💸
  3. Zero fees to set-up a standing instruction (I will elaborate more about this later) 🤖
SEE ALSO:  Understanding Your Personal Cash Flow

Step 3: Open an Expenditure Account

Following that, create a separate bank account for drawdown purposes. For the most part, this bank account is used for our day-to-day expenses for the entire month. Accordingly, these are the main criteria for this bank account:

  1. Low or zero minimum average daily balance (as this account will run dry at the end of the month) 🔓
  2. Has an ATM card or debit card (purely for convenience) 💳

Step 4: Automation

The best part on creating our budget is to automate it. Based on the cash flow analysis that we have done (in step 1), set up a standing instruction with our salary account and transfer the required monthly expenses to our expenditure account on the first of every month.

Once this set-up has been completed, I will deactivate my token and cut away my ATM or debit card for my salary account. In other words, I make it difficult to access my salary account. This way, I will be forced to spend within my means from my expenditure account only.

My Monthly Budget Process
My Monthly Budget Process

Step 5: Review

In the final step, review our cash flow on a monthly basis. Understand where we are spending our money on, e.g. in the category of fixed expenses, or variable expenses. Conduct such checks regularly and understand how we can really live within our means. This is especially true if we have the temptation to spend more whenever we see more money in the bank. 🤑

P.S. If I have leftover in my expenditure account at the end of the year, that is my money and I get to spend it on anything that I want as a reward to myself! 🎁


In order to create an effective budget, we will need two things, 1) clear understanding of our cash flow; and 2) discipline to distinguish between a need and a want. At the end of the day, it is not about how much we earn. The truth lies in how much we save.

A budget is telling your money where to go instead of wondering where it went. – Dave Ramsey

Share Your Thoughts 💭

1️⃣ Save or spend? Which do you do first?

2️⃣ Do you create and use a budget?

3️⃣ What are some of the biggest accomplishments or obstacles in budgeting?

Found this post useful?

Make sure you don't miss the next one! Sign up for our newsletter and stay connected.