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The Complete Personal Budgeting Guide

There are 2 ways people usually look at budgeting.

The first way is that you should focus on earning more.

The more money you earn, the less you have to worry about the nitty gritty aspect of money. Earn so much more, such that you do not have to worry if you spend $500 on food or $1000 on food.

The second way is that building wealth starts with being aware of the small things.

If you cannot manage a small sum of money, how can you cope when you have more money?

Both are not wrong.

However, both ways can be described as some justification why we should not do the other.

The first way of looking is flawed because we see a lot of folks earning $100,000/yr to $150,000/yr yet end up with very little net worth, residual cash flow and often in debt as much as 1 year of their massive salary.

It is easy not to have a good vantage of where all your money is going. Not just that, it is easy to think money is unlimited when you earn so much that it fills your life entirely.

The second way of looking can be limiting as well. You may get holed up so much in optimizing what you have but if your income does not go up, austerity won’t get you far.

There are many misconceptions about budgeting, and people felt that it is OK not to budget.

The main reason is they have things under control.

I can assure you many do not have things under control.

What is Budgeting?

When you budget, you decide how to spend a sum of money you have, according to the way that you want it to be spent.

Some examples can be the take home pay that you bring home from work, a windfall that is provided to you by your parents, or the sum of money that you gotten after you sold off the car.

1. Resources are Scarce, So we have to work with what we got

One of my friends worked in the venture capital business. His salary for the first 4 years averages $100,000/yr.

You would have thought that is a great salary to get started, set yourself up for a good life.

Yet, when we met up, he pours out that it is not easy at all. The nature of his job means that he has to ensure his image is kept up. He got married much younger compare to our peers so most of the family things such as housing, maid, stay at home mom and child hit him earlier than most of us.

Even with an above average salary, it doesn’t mean you do not need to manage it.

We all have only a limited amount of money we can work with.

2. You can afford Many Things, but not Everything

The tenets of budgeting is that, as we only have a limited amount of money to work with, we have to pick and choose every time how we spend our money.

If your monthly salary is $3000/mth, you could afford one or two extravagant finer taste in life. Beyond that, you will have difficulties. This is one of the reasons a lot of people get into debt. They have a lot of extravagant wants in life.

Budgeting is about making hard choices.

3. A Budget should be Forward Looking not Backward Looking – Zero Based Budgeting

One of the resistance that you may face not starting a budget is due to the problem that  you do not know how much that you spent in the past.

I can assure you, that is not so important.

As a project lead, I was often given an objective to achieve and sometimes it entails setting the budget. The budget, in most cases should be the limited pool of money to achieve that objective.

I do not need to care so much on what is the budget used or budget given for past project. Now, past project budgets are important. It gives us a sensing of roughly how much budget we need for this new project. This is especially so when we references a similar old project.

When it comes to your personal budget, what you are concern with are how do you spend this limited amount of money to achieve your future objectives. It will be great if you have the data of how much you spent on entertainment, food and transportation in the past, but if you do not have them its not a problem.

This means that, if you spend $5000/mth in the past, forget about it. What you want to find out is that, given the new you (the you who want to live in a purposeful manner), how much would you spend going forward?

This is essentially know as Zero Based Budgeting.

The past is for you to learn from, however it shouldn’t be baggage that slows you down.

Famous Value Investing Warren Buffett likes to work with the Brazilians in 3G Group and have teamed up with them in their purchase of Heinz. What 3G Group was able to do is to cut costs of business they purchase to improve the operating margins. What they leverage upon is the Zero Based Budgeting Concept.

4. Your Budget is not Static. You are Constantly Engaged with it

How you spend money in the past is not so important, and that is because you should be constantly reviewing and shifting the budget.

Some of you have never track your spending in the past. It is not a problem because you can adjust along the way.

Suppose you set a food budget monthly of $100 and in the first month you below past this to $300.

There can be 3 conclusions:

  1. You are not controlling how much you spend on food
  2. You have poor awareness of how much a person minimally has to spend on food
  3. Somewhere in the middle of #1 and #2

You won’t get how much you need to spend in the first cut.

In project management, an important role that the project manager plays is to adjust things in a realistic manner. No 2 projects can be entirely alike and as such, some areas we have to spend more than another project. We have to find ways to cut from other areas.

In our personal budget, the same is true. If we realize we budget too little, next month we bump it higher (but we also take into serious considerations whether we could realistically reduce the amount that we consume last month)

There is a limited pool of money and we keep adjusting. A budget fails when you think it is set it and forget.

5. Your Budget is a reflection of your Values going forward

In a way, your budget can do some fortune telling magic. When we examine a person’s budget, we can tell what does the person value more.

Your spending versus what you value
You might place a high value on some things in life, but when we examine your spending, your spending does not reflect closely to what you value in. There is a disconnect that you may need to address

If there is absence of savings and investments, it means the future is not so important to them at this point. When vacation money makes us 60% of their annual salary, we can conclude that experiencing new things overseas is something very important to him.

We ask the question here: Is this really the case?

Some of you might shake your head that, “no…… that might not be entirely true….”

In that case, you have just identified a mismatched between what you value, and what you spend on.

Budgeting is very empowering if done right, in that, it matches each dollar to what you value the most.

6. A Budget Breeds Discipline over your Wealth, and Discipline Equals Freedom

I always remember this interview of Jocko Willink on the Art of Charm. Jocko was commander of SEAL Team Three’s Task Unit Bruiser during the Battle of Ramadi and the author of the book Extreme Ownership.

In this interview, Jocko shares what people misunderstood about discipline. Most people would associate a budget as something that constrain your spending, and therefore they have huge resistance to being on a budget.

A budget, is a deliberate practice of financial discipline. When you have a budget, you have created rules how you should spend your money, to achieve the objectives you want to achieve.

When you spend your money in this way, you spend within constraints that are fundamentally sound. You adjust your spending in a fundamentally sound manner. When you execute spending this way, it creates freedom to achieve what you want.

If you are pondering whether you can fulfill your dream of studying a Masters degree, put it in your budget, pull something else out, and you can achieve your dream. It is that simple.

My friend used to struggle with the guilt of spending on things that she enjoyed, and the anxiety of whether she is doing the right thing.

She doesn’t know that she is trapped at this point.

When she decide to pick up envelope budgeting, and have used it for 8 months, she told me that this was the most freeing thing, and that she should have done this years ago.

With her budget as her life dash board, she doesn’t feel the anxiety of whether she have enough money for future goals and the YOLO lifestyle she lives. She knows that if she wants to YOLO, she has to cut some of her longer term goals, and that might not be a good idea. So instead, she weighs her YOLO activities and pick some to cut.

By going through some of the important principals listed here on budgeting, she fine tunes her budget more to fit her real values rather than her perceived values.

7. Frequency of the Sum of Money

The frequency can depend on how often you will receive the sum of money. At work, we may be provided a budget on a project basis. We can also be tasked to manage an annual budget, which will be yearly.

On a personal basis, most of the time, we receive our salary monthly and so the frequency tends to be on a monthly basis. Some of you would face a challenging situation as your main job is through freelancing and the cash flow that you get in can be volatile or on a project basis.

Implementing A Budgeting Systems that suits you – 4 Different Levels of Budgeting Systems that you can Implement

Now that you have a certain understanding why we need to have some sort of budgeting system, how do we go about implementing it?

There are a few personal budgeting systems that personal  finance coaches, business experts have come up with. They have their good points and challenges.

As your temperament are different as well, some of these budgeting systems might suit you better than others.

There are 4 different levels of budgeting. Level 1 is the most abstract and less reliant on any decision supporting tools. Level 4 being the most granular and most reliant on decision support tool.

When we carry out budgeting, there are certain main jobs that we deal with:

  1. Capturing of our actual spending. We need a way of knowing how much we have spent over a particular period.
  2. Compartmentalization of how much we can spend. We also need a way of having a clear demarcation between some type of spending, compared to another.
  3. Consulting our budget before spending. We need to find out if we have adequate amount of money to spend.
  4. Reviewing of our budget. We need to adjust our budget as our needs change and to correct overspending and underspending last month.

Here are the 4 different levels.

1. Brain Budgeting

This is a favorite of many because you do not need a lot of special tools to budget. You just rely on the powerful computer sitting atop your shoulders!

You decide why you should spend on something, how much can you spend on something, and whether you have hit the limits of what you can spend for the type of spending.

Majority of my friends and family do it this way. And they trust this method more than any other methods.

The reason is mainly that they have been managing their money successfully.

Good Points:

Your brain is a very powerful computer and the more you use it the better it gets. Unlike relying on third party devices, your brain doesn’t run out of battery, does not stop functioning when water is thrown on it.

If you are influenced by good money allocation and optimization principals, you can translate them into rules that you apply in daily lives.


Unfortunately, we use our brains for too much things. Due to that, we cannot devote enough of our resources to remember how much we can spend on particular spending categories, because we also do not know how much we have spend on that spending categories up to this point.

We cannot allocate and optimize our budget well in our head. Only some of my friends can visualize how much they could spend in their head. Most I know have some sort of an external tool to help them make sense of their budget.

For most people, they do not have a good set of money allocation and optimization principal for a start. Due to that, how they spend their money is a mess and often leads to money problems down the road.

It is due to this that most people do not optimize their spending well.

They thought that they have a good handle of things, but they really do not.

Who this type of budgeting is most suitable for:

Despite its flaws, brain budgeting can still be viable. Brain budgeting could be where some of you go back to, when you have fine tune your perspective on life, have understand how to spend money in a wise manner, and are able to visualize how much you can spend in your head.

It is also viable to the people where most day to day spending have very little impact on their financial health. This would be for you who have scaled up your income to a high level but are only living on a small percentage of that income. You are already doing a lot of the right things financially, and not spending well on a small amount is not going to make a tremendous negative impact.

I would say there are some of you who have used the other levels of budgeting, learn and train your brain better, and eventually  decide to simplify back to level 1 of budgeting.

2. Reverse Budgeting

Reverse budgeting builds upon brain budgeting by keeping the abstract nature of spending while protecting what is important to you.

In reverse budgeting, we focus on the goals that are important to us. This could be retirement, saving for our children’s tertiary education, an upcoming wedding or a vehicle purchase.

We compartmentalize these spending goals, allocate our money to fund these goals first, and then spend the rest the way we want.

Reverse budgeting system can also be known as the pay yourself first system.

automate saving your money monthly
automate saving your money monthly

I have shared how I pay myself first in an automated process in the past.

When you get your paycheck from your company in Bank Account 1 every month, before you spend it, create an automatic transfer of $500, $1000, $1500 or $2000 into Bank Account 2. This is called your Wealth Fund, where you will fund any stock brokerage accounts, unit trust accounts, insurance savings plans.

By doing this, you would have managed to ring fence the money that is meant to build your wealth to achieve your longer term financial goals.

You can then spend freely the rest of the money for daily expenses in Bank Account 3.

In Singapore, the greatest reverse budgeting system can be our CPF system. Before we can spend our pay, CPF takes away 20% of what we earned and ring fence it. We can only spend the other 80% of our pay.

Good Points:

Reverse budgeting is good in that it forces you to prioritize the few monetary goals that have greater impact on your future financial well being. This is so that we do the responsible thing and not jeopardize our future.

Yet, it still allows you tremendous freedom to spend with great flexibility the rest of your money.


The weak point of reverse budget is that you will not optimize the rest of your money, other than the portion in which you pay yourself first.

This means that if you have some spending disorder, you might not fixed the problem. Suppose you are spending too much on dining out. Reverse budgeting does not target behavioral improvement directly. You will still be left with the problem.

You will likely not have a good awareness how you spend your money. As you do not have a good awareness, you do not know your annual expenses that well. You will only likely know your Gross Annual Salary – Your Wealth Fund as your annual expenses. If you wish to find out your Annual Survival Expenses, which is a subset of your annual expenses, you could not.

The downside of not knowing your annual survival expenses could be that you cannot figure out how much you need for Financial Security if you are working towards that.

Who this type of budgeting is most suitable for:

Reverse budgeting is most suitable to ease someone into budgeting.

Reverse budgeting will enable the person to see the result that we can successfully build up some savings, pay down debts and increase the net worth. If the person are more motivated to improve further, we can then introduce deeper budgeting systems.

It is also for the busy professionals that would be better focusing their efforts on earning more. All they need to ensure that they increase the amount that they put into building wealth and other pay yourself first money goals.

3. Balanced Budgeting

The Balanced Budget is one of the most popular budgeting system seen out there. Many personal finance portals tout this. However, legend has it that the one person that introduced the balanced budget to us is Senator Elizabeth Warren and her daughter Amelia Warren, who wrote this in their book All Your Worth. (Side note: Senator Warren is one of the most hard hitting politician, championing for the average folks. You can check them out on YouTube)

The idea of the balanced budget is to slice up your take home salary into three piles:

  1. Needs (50%)
  2. Wants (30%)
  3. Save (20%)

The exact proportion of each category is debatable. Over the years, people come up with different proportions.

This infographic that I found explains the 3 piles very well.

How you can implement this:

There should be some budgeting application on Android, IOS or Windows that implement this. However, the simple way is to implement using a spreadsheet.

By using a spreadsheet, it will allow us to keep track based on percentage how much we currently spend on our needs, wants and save.

Good Points:

Balanced Budgeting expands upon Reverse budgeting in that it allows us to compartmentalize between 2 kinds of spending: needs and wants.

Balanced Budgeting also do not neglect the importance of our longer term financial goals.

With balanced budgeting, it shifts the narrative of your spending to whether its a needs and wants, versus one black box in reverse budgeting.

This allows us to curate our behavior to a certain extent.


The challenge for balanced budget is how much percentage do we allocate. Is it right that we should spend 50% on our needs? How about 30% on wants?

Should we only save 20%? The overarching idea is you determine the right percentage for your family and yourself. We should not be constrain to this textbook percentage. You have to figure  out what is the fundamental sound allocation among this 3 categories.

The other flaw is that we usually don’t relate our spending with percentages. You need to translate that to absolute numbers. It is more relate-able if we say we shall only spend no more than $500 on our food, rather than we shall not spend 3.2% of our salary on food.

When you need to spend, you need a way to refer to your app or spreadsheet how much you have spent and you can spend.

The last challenge is: What is a need and what is a want? It can be rather debatable for some of you. Is this insurance policy a need or a want. Some of you may think insurance is absolutely necessary while to another, it is a good to have. The problem will be putting each of these into the right category.

Who this type of budgeting is most suitable for:

Balanced budgeting is suitable for the folks who wants to curate their behavior. They may have a problem of living an extravagant lifestyle and would like to rein it in. The best way to reined it in is to identify your wants and reduce them over time. You  might want to reduce some of your needs as well.

It is also good for folks who do not wish to have too complex of a budgeting system.

4. Envelope Budgeting System

The last level of budgeting is what I practiced with, the envelope budgeting system. The idea is that instead of  having 3 piles of needs, wants and save, we divide what we spend on into spending categories.

Then we assign our salary to all these spending categories.

In the old days, some parents will divide their $500 salary into cash envelopes. Whenever they would like to purchase specific things such as groceries, they will bring the envelope labeled “Groceries”.

They can only spend what is in the envelope.

If they spend too much, they have to think where they should take the cash from the other envelopes.

If they do not use up and there are leftover cash, they can use it in the next month. This allow us to build up our cash reserve for a particular  spending categories.

Nowadays, we do not use envelope. We make use of decision support systems that helps us keep track of “virtual envelopes”.

Snapshot of my Envelope Budgeting System
Snapshot of my Envelope Budgeting System

The following is a sample of a snapshot of my envelope budgeting system on

Every month I will get a paycheck, and I will divide my paycheck among the envelopes named Gifts, Vacation, Books & Magazine for example.

I will track how much I spend, tagged the spending to each category. If there is not enough balance, I should spend less. I will be shown the balance left for me to bring forward to next month.

A red color balance show money owe to someone else. This means that in actual real life I am borrowing from somewhere in order to spend money that I do not have.

How you can implement this:

Due to the granular nature of the envelope budgeting system, a good decision support system is often required.

On the Windows, Mac OS, IOS and Android platform, there are apps that implemented this that you can use to help.


  1. Quicken. This is a very flexible paid application but you can adapt it into an envelope budgeting system. I have been using Quicken for the past 10 years before going off it at the start of this year. You can read my short guide how you can create envelopes with it.
  2. Excel Spreadsheet. You can create a simple envelope budgeting system with this tried and tested spreadsheet software.

Online with Mobile Apps:

  1. You need a budget (YNAB). YNAB is the leader in envelope budgeting system. It is a monthly subscription based service that cost US$5/mth. There is a large community of people using it, and the main benefit of YNAB is that they position themselves as an education platform where the app is just the facilitating application  but the greatest value is the tutorials and community that changes the way you manage money
  2. is a personal project of a developer. It is web only. If you want to download a browser based offline only version it is FREE. If you need it to sync to an online server it cost US$1/mth. This is very much a clone on the old YNAB methodology and it is very usable. Suitable for the folks who wish to get started on envelope budgeting
  3. Controle Finance. A Brazilian based in Holland created this online personal finance platform. I would say it looks quite nifty like Quicken, only that it is online. You can adapt it to the envelope budgeting system. It is FREE for now.
  4. Pear Budget. Pear Budget is very simple. It is web only. There is a 30 day trial after which it is US$5/mth.
  5. Google Spreadsheet. Google provides a free spreadsheet program that is very competent. You can create your own envelope budgeting system with it. If you would like to get started, I came up with an envelope budgeting spreadsheet not too long ago. You can make a copy and then play around with it here.

IOS and Android:

  1. YNAB have their mobile companion application
  2. Goodbudget (IOS and Android). Formerly known as EEBA. Goodbudget started out as an Android budgeting system which eventually became something like YNAB. The limited version is FREE. The full version cost US$5/mth or US$45/yr.

Good Points:

Envelope budgeting solves a lot of the issues that those systems in the previous levels struggled to resolve. When you divide your salary and give every dollar a job by placing them into each category, you train yourself to become a wealth allocator instead of focusing on spending.

When you break your needs into various envelope, you can also zoom in to specific areas of your spending (and life) that you wish to address. You will be able to monitor these areas better. This helps to change behavior.

Instead of grouping your spending in very vague and subjective category such as needs and wants, you can describe them in a more granular fashion.

One advantage of having a good decision support system is that, you are able to see all your envelope and the amount that is left over. It gives you the idea that, if you do not spend a particular amount this month, you will have more to spend next month. Indeed, you can break down a bigger annual spending and build up what you need on a monthly basis. For example, you know that you will need to pay an annual insurance expense of $600. You can break it up and put $50/mth into your insurance envelope. At the end of the year, you will have $600 to tackle this annual expense.


The challenge for envelope budgeting system is that a lot of the time, most of us cannot visualize envelopes in our head. Using physical envelope is a bit difficult if you want to lunge around a lot of envelopes.

Thus to implement we need a good software such as YNAB.

It will also take some time to get used to integrating envelope budgeting into our lifestyle.

To some, envelope budgeting can be overly complicated. They think that by planning this way, it takes up too much time, too restrictive and too OCD.

Which Level of Budgeting should you Choose?

Step 1: I would advice you to at least set up a Reverse Budget.

By doing that, you at least take care of the fundamentally important things such as building wealth and clearing your debts automatically.

It is also the kind of budgeting with the lowest mental hurdle. You need to set up some automatic funneling of your salary into a bank account meant for building wealth. Perhaps you need one separate one for debt payoff.

Step 2: After doing reverse budgeting for some time, you can then ask yourself what are your future goals and how would your annual or monthly salary support those goals?

By asking this question, it makes you reflect upon your current way of spending. It puts the question whether you could squeeze money out to support some aspect of your life that you place a higher value upon.

You could then implement a Balanced Budget or an Envelope Budget.

If you want absolute freedom and granular control, I would recommend an envelope budgeting system.

Investment Moats Readers, how do you Budget?

Having said so much, let me know how you go about budgeting. I would really love to hear some success stories of folks who manage to budget in their head.

If not, what is your favourite tool or experience with your current tool, and what do you not like about it?

Share with me in the comments or chat.


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Wednesday 2nd of October 2019

Thank you for this article. I've struggled with budgeting my entire life and reading this has really changed my perspective on budgeting; rather, it has given my attempts at budgeting a ''form''. I've been practicing my own version of balanced budgeting but, as you have pointed out, it doesn't help when you want to have a good idea of how much you are spending. We don't relate to figures in percentages. Thus, I have decided to ''upgrade'' to envelope budgeting, as per your recommendation. Some questions: Can you explain what the sections 'Diff in Budget' and '% Budget Spending' mean in your Google excel sheet? And may I know what the numbers in the first and second rows refer to? Thanks!!


Tuesday 8th of October 2019

Hi Z, Diff from Budget is the difference between what you have available for spending and what you actually spend. This is to let you see after this month's spending how much is left over. % budget spending refers to how much of your money you have budgeted and what have not been


Tuesday 16th of May 2017

Hi Kyith,

My friends are introducing me this app called Seedly.

What do you think of it?


Wednesday 17th of May 2017

Hi Tommy, Seedly is something like in the USA. It pulls your bank statements. However, it can be rather hands off in planning forward. to me it does not give a good system to plan forward and therefore does not influence the changing of behavior a lot

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