Sunday, 24 July 2016

What I do on pay day

I wish I could say I am one of those people that are just focused on spending time with family & friends, developing my own interests and getting stuff done at work such that I don't even notice its pay day. But I'm not.

That being said. I do enjoy engaging in all these various activities but I'm acutely aware of when its pay day for my wife and I. As our salary is paid monthly, pay day is usually at the end of the month for both of us.

This is the day when our monthly salary gets credited into our designated bank accounts for getting through the month of work. For our office jobs in accounting, the month of work could range from getting slammed with multiple deadlines to having not much to do depending on the time in the year.

We get paid the same amount either way since Singapore is not big on overtime pay. On a side note, annual performance bonus is quite a big thing here and it does give employees something to look forward to at the end of each year. In bad times, salary freezes and no annual performance bonus could mean you take on more work for the same pay for quite a while.

That's a short insight into why pay day is an important day for us. However, it is more significant to me because of what I have to do on pay day. My wife just wants to know the pay has been credited so she can do fun things with the money she has earned. I actually have a list of personal finance management tasks to get through. Lucky her.
1. Ensure the correct monthly salary amount is credited

I log into the internet banking designated accounts to check that the correct monthly salary amounts have been credited. These should usually be the same as the previous month unless there are any reimbursements for work expenses incurred.

2. Funds transfers to other bank accounts

On the same login, I make online funds transfers to other bank accounts. I have to top up the accounts where I set up automatic payments for the monthly credit card bills. Or where there has been drawdowns for investment purposes and withdrawals for spending purposes. The reason being there are usually required minimum average daily balances to avoid being charged a fee.

For low interest bank accounts (< 1% p.a.), I maintain them at only S$500 above the required minimum average daily balances. This is a sufficient cash buffer since I don't like our funds idling in such low interest bank accounts. Hence the need to manage them in a lean but efficient manner.

For high interest bank accounts (> 1% p.a.), I maintain them at the maximum average daily balance to qualify for the higher interest. There is no point having more funds than this balance amount since the excess cash reverts to earning a low interest (< 1% p.a.).

All excess funds are transferred to a single normal interest residual bank account (1% p.a.). This is where I keep the cash to allocate for savings, investment and spending purposes.

3. Review cash allocation for current month

I don't update our Google Sheet of assets, liabilities, income and expenses on pay day. This usually happens on the first or second day of each month so I can better capture the movements and balances for the previous month. Besides, I try to coincide this with the updating of the pages on my blog so they can happen concurrently to save time.

What I actually do on pay day is to conduct a cash review. It's a good time to look at how much cash we have been spending on expenses for the current month. This is especially useful in picking up on spikes in our non-discretionary spending and identifying areas for reduction.

We also work out how much cash we have invested and leftover as savings. Cash deployment monitoring for investing in a downturn is critical since this period of time usually coincides with an increased risk of retrenchment. As long as we can increase our cash on hand savings by S$2,000 each month (after investment cash allocation of S$2,000), we are happy with the progress.

These three steps take about 30 minutes to complete on pay day but gives us a better idea of how we can approach our cash budget for the next month. That way, we don't have to go through the month worrying about our cash allocation and whether we have sufficient cash savings.

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