Using 2 Bank accounts for Income Budgeting

Daniel solo9Feb207

Daniel Chang

Senior Director, Financial Services

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Meeting young working adults in my line of work, I often ask them how they plan their cash flow. Do they pay themselves first before they spend? Or do they only save the leftover? Sharing…

Meeting young working adults in my line of work, I often ask them how they plan their cash flow. Do they pay themselves first before they spend? Or do they only save the leftover? Sharing the 2-Bank account systems with the 20-40-40 budgeting rule, I aim to help them manage their money more effectively.

The 1st 20% of your income will go towards your CPF account. Your employer will contribute another 17%, making a total of 37% that is channeled to the three accounts in your CPF (CPF-OA, CPF-SA, CPF-MA) – The allocation percentage can be found on the CPF website ( While your CPF-OA can help you with your housing payments, remember that CPF savings (CPF-OA + CPF-SA) are for your future retirement needs. As such, it is prudent to use the appropriate amount so that there are still some funds left in your OA to accumulate together with the money in the CPF-SA to meet the required minimum sum @ age 55.

Bank Account #1 (40%):-  The balance of 80% of your take-home salary after CPF deduction will be credited into Bank Account #1. Schedule an auto-transfer or apply through GIRO to transfer a fixed amount (40%) every month into Bank account #2 (I called this “Pay Yourself First Account”). The remaining 40% in Bank Account #1 is for you to manage your monthly expenses. – Monitor, Prioritize and Find ways to reduce your expenses.

Compile a list to help you differentiate between needs and wants by breaking down your expenses into ‘Necessities’ and ‘Treats’ and this can be subjective. A Starbucks coffee every day to someone is a necessity but to some, it is a treat. We can be responsible for our finances without being too harsh on ourselves. It is all about finding a balance.

Bank Account #2 (40%): – I called this account, “Pay Yourself First Account” – This account is to fund your long-term portfolio (Insurance Portfolio, Regular Saving/Investment portfolio) as well as for your Emergency Fund. You can allocate the percentage based on your long-term goal e.g. a) 10% Emergency Fund, b) 15% Insurance and, c) 15% towards Savings & Investments.

a) Emergency Fund (10%) – You will need to build up your emergency savings until they reach a certain amount. This money is not to be utilized except in the case of unexpected, unavoidable expenses, such as a medical emergency, job loss, or unplanned expenses.

How much you should set aside depends very much on your job stability. If your job has been referred to as an ‘iron rice bowl’ and you have always spent within your budget every month, then probably 3 months’ worth of your monthly salary is sufficient. But if you are holding a variable income job like a commission job, you may want to set aside up to 6 months’ worth of your monthly salary.

After you save up this emergency fund then you can redirect this 10% portion as allowance for your parents if you need to support them. If not, you can use this fund to accelerate your saving/investment

b) Insurance (15%) – Life is full of uncertainties. The best-prepared plans can be thrown off course by unexpected illnesses and accidents. It is prudent to take safeguards to ensure that if unexpected events do strike

  • Medical Plan (H&S) helps to cover your large hospital bills for life
  • Long-term care Insurance provide financial support for severe disabilities or prolonged treatment.
  • Accident plan is primarily meant for protection against accident-related complications, providing compensation for injuries, disabilities, or death.
  • Critical illness Insurance protects you from high costs incurred by Major illnesses
  • Loss of Income insurance provides a monthly payout for the loss of income due to an accident or illness that causes you to be unable to carry out the duties of your own occupation.

c)  Saving/Investment (15%)

To invest your money, you need to consider factors like risk, return, tenure, and liquidity. You should start investing early, no matter how modest your investment may be. This is because your investment will ride through the volatility of the market if you stay invested for a long time, potentially reducing the chances of losing money. Investment requires great discipline and patience.

Build an investment portfolio that works for you based on your investment strategy. Consult with a Financial Planner who can tailor schemes for you to ensure that you can cover your basic and safety needs and assist you with considering slightly riskier schemes* to build up your finances, so that you can progress towards reaching your financial goals.

* This is dependent on individual’s risk appetite and will be determined through fact-find and needs analysis

Contributed by: Daniel Chang (Rep no: CWM200086415), CPF FChFP 


Any views, opinions, references, assertions of fact and/or other statements that I may set out on this article are personal views and are not necessarily the views held by the Great Eastern group. The Great Eastern group disclaims any liability whatsoever that may arise out of or in connection with such statements