Father Sez

From and to parents - parental advice to our children on personal financial management and life.
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Posts Tagged ‘envelope budget’

Helping to set up my daughter’s monthly budget

Monday, October 27th, 2008

I have regretted not discussing personal financial management with my elder two girls during their younger days. By the grace of God they have both grown up to be quite financially responsible. They have not shown any signs of the “must have” mentality for designer jeans, fancy cell phones and the like. 

I realised my shortcoming ever since I started blogging and have started on the younger 3 children. They now operate on a monthly allowance + maintaining books of accounts of their spending. In addition they practice the “pay yourself first” principle by allocating 10% of their allowance for savings as soon as they receive get their allowance. (Our youngest, Ain, has a weekly allowance). 

Coming back to the elder girls. Along and Azah have completed their degrees and have started work. (Along has resigned from her teaching job. More on this later.  Azah works with one of the Big 4 firms).

This budget exercise was done with Azah. Over the last 3 months, she has kept track of her spending and now has an accurate estimate of her monthly outgoings. She has a single income, a once a month paycheck. Her net salary is banked into her account and she withdraws what she needs using an ATM card.  We worked out her outflows, the fixed once a month ones and the other daily outflows. The worksheet looked like this. 

1. Income  This is net of deductions made for the Employee Provident Fund, a statutory requirement under Malaysian Law, and a little also for statutory insurance.  

2. Savings. I have explained the concept of paying yourself first to Azah and she transfers 15% into her savings account. 

3. Rental (she rents a room near her workplace) 

4. Loan Repayment (she has a study loan as well as an investment loan. The investment loan was taken by me under name when she turned 18. The returns are almost sufficient for the monthly payments and there is a small top up). 

5. Food 

6. Entertainment (including her cell phone costs) 

7. Travel 

8. Miscellaneous 

Items 2, 3 and 4 are fixed monthly. At present she does the transfers monthly. I have talked to her to make these automatic bank transfers. I’ll have to check to see if this has been done.  

For items 5, 6 and 7, I have asked her to do withdrawals weekly and keep the money in separate envelopes in her room. Each day she’ll take the estimated amount for that day and keep the money in her purse for daily spending. The purse is “topped” up each day.  

Picture Credit: http://www.money3rd.com/financial-success-2.php 

I have talked to her about joining friends to eat at expensive restaurants. It is likely that some of these restaurants may be too pricey for her budget. In such a case, she just has to turn down the invitation. Perhaps it may seem to be shameful amongst her peers, but I have assured my daughter that there is absolutely no shame in this. It is far more shameful to live beyond one’s means.  

The balance in the envelopes and in her “salary bank account” each month should be  transferred into her savings account.  

I have not talked to her on her yearly expenses like insurance, her new clothes for Hari Raya etc. This year these costs have been in the Ma and Pa’s budget. In January 09, Azah has to start including these. 

I suppose my children are far luckier than my wife and I were when we were at her stage in life. My daughter already has an emergency fund (again, thanks to Ma and Pa) and she does not have to contribute to our household.  

I have not talked to her on investing etc, though she did attend a workshop on property investment earlier. I plan to do this sometime next year, by introducing her to my friends who are far more successful in various investment activities than her parents.   

Note: 

The envelope system seems to be a great way for a start into budgeting. A fair bit has been written on this subject. Have a look at

- Budget Building 101 - Creating a Budget Using the Envelope Method,

- Frugal Dad’s fine tuning when you have to take your envelope system on the road and

- the well written piece on this subject by guest poster Luke from NeoBudget on Gather Little by Little.   (NeoBudget is an online budget manager that uses the envelope method to help you track your spending habits and stick to a budget).

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