How To Allocate Your Monthly Salary

Working Adults: How To Allocate Your Monthly Salary?

2 min read

“I am getting my first salary, what should I do with it?”

Now suddenly, you no longer getting an allowance. It now seems like the world is so much bigger with a huge jump in your bank balance at the end of the month. This article serves as a simple guide to you on which accounts you should set up and what you should do next with simple strategy at the end.

In this episode of SeedlyTV, Kenneth and Xinyi from Seedly covered the basics of finance that is applicable to everyone, especially if you’re stuck in a rut and don’t know where to start.

SeedlyTV EP01: A Beginner’s Guide to Personal Finance

The Only Rule For Salary Allocation- PAY YOURSELF FIRST

You might be wondering, what the hell does this even mean, I am already being paid. Well, not exactly. We like you to think of yourself as a mini-business operating and you have to stay healthy financially. Hence, your monthly salary is like an inflow that happens only once a month and you should have a cash reserve (savings account) which is separate from your spending and wealth accounts.

This is based on a simple yet effective way to manage your money for beginners, where you segment your money into different accounts for different purposes.

Here’s how to allocate your salary:

  1. On your payday, you get paid a salary credited into your Savings Account
  2. One day after your payday, you set up an automated transfer of 50% to your Expenses Account
  3. In the middle of the month, a preset amount (around 30%) will be deducted with an automated Regular Savings Plan (RSP) for your Wealth Account to buy the STI ETF

In three simple steps, you are pretty much set for your monthly cash flow management. Amazing isn’t it?

How To Allocate Your Monthly Salary

The Best Part – It Compounds & Grows

Here are some assumptions for this representation below:

  • A $2,000 take home salary (with no increment),
  • Starting with $0 savings account balance,
  • Following the rule: 20% savings, 50% expenses, 30% wealth
  • Savings account interest – 1.8% (e.g OCBC360)
  • Wealth account returns – 6.3% p.a (based on past 3 years STI ETF Dollar Cost Average returns) with min. fees

Within 2 years, you would have amassed A TOTAL OF $25,162

  • Savings Account: $9,782
  • Wealth Account: $15,380

savings account vs expenses account vs wealth account

Our Recommended Strategy

As seen above, you don’t need anything to get started. You probably can already start now with a single account:

  1. Set up your 3 accounts and clearly define the boundaries (savings, spending, wealth).
  2. From the first month, start adjusting your % between the 3 to define the right allocation.
  3. It should be comfortable but also a tad challenging to push yourself to make smarter spending choices.


Further Reading – If you are a numbers geek 😉

Below is a breakdown of the simplified chart as seen above. As you can see the numbers were calculated with very easy and simple values, with a $0 account balance at the start.

Imagine what you can achieve if you actually start off with a solid foundation, and working hard to get more increments (increase in Salary) over the next two years. Also, this illustration excludes the 13th-month Annual Workfare Supplement (AWS) and additional year-end bonuses which most companies (if not all) caters for.

BONUS: If you can even increase your savings ratio even further, the numbers would compound even more. For example, increasing your savings to 30%, and reducing spending to 40%. Some really frugal financial bloggers even encourage early fresh graduates to start with over 50% savings… But again, to each his own, so as the same old adage goes:

Spend within your means~!

Savings account vs expense account vs wealth account

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