I came across a speech/sermon by Dave Ramsey on Youtube about being intentional with money. His “giving every dollar a job to do” catchphrase is very attractive. I borrowed and read his book The Total Money Makeover to get more details.
I was looking for ways to better manage my finances as I prepare to go back to work after nearly a year of rest. I thought I’ll use his methodology to guide me on my financial journey.
This post documents my attempt at following Dave Ramsey’s Total Money Makeover as a Singaporean.
Table of Contents
My goal is to be financially free to do whatever I want. For me, this means my passive income surpasses my expenses. I would like to achieve this by 2026. It is a tight deadline.
What is the Dave Ramsey’s 7 Baby Steps?
Baby Step 1 to 3 – I currently have cash savings of more than 3 months of my take home pay that act as my emergency fund. I also do not have any debt except my home mortgage. This means that Baby Step 1 to 3 are already done. Baby Step 5 – I don’t have any children so I do not have to save for college funds.
So, I am currently working on:
Baby Step 4 – Invest 15% of Household Income in Retirement
Dave Ramsey advocates investing 15% of household income in retirement. Like many, my first question was “Why 15%”. He offered 2 reasons:
- It is an industry standard.
- Leave some money for the kids’ college fund and the home mortgage.
He said that 15% is actually insufficient for retirement, so if I do not have kids or a mortgage, more should go to retirement.
As mentioned, I do not have children so I do not have to set aside money for Baby Step 5. There are differences in the retirement programmes between Singapore and United States. I need to work out how they affect my Total Money Makeover plan.
The Central Provident Fund (CPF)
CPF is similar to the 401K in the US. I contribute 20% of my income to CPF and my employer contributes 17%. A total of 37%. So, it seems like I am already investing more than 15% of my income to retirement. But that is not quite true because CPF has other uses.
Besides retirement, it can also be used for home ownership, healthcare, and education. I have 3 accounts in CPF. The 37% contribution is split between the 3 accounts:
- Ordinary account (OA) for buying a house and funding education
- Special Account (SA) for retirement
- Medisave (MA) for healthcare
After the split, I’m contributing less than 15% towards retirement in my SA account. The interest rate for SA is 4%. This is lower than the 10% assumed by Dave Ramsey.
Supplementary Retirement Scheme (SRS)
The SRS is a voluntary savings scheme towards retirement that comes with some tax relief. The maximum contribution of $15,300 is an absolute amount. Tax relief is great but the scheme comes with some limitations.
Firstly, it is illiquid. Withdrawal before the statutory retirement age attract a 5% penalty and withdrawal amount is 100% taxable.
Secondly, the types of instruments I can invest SRS in are limited. Since it is for retirement, I understand that the money I contribute is for long term.
An additional retirement fund
I think I need to supplement my retirement besides CPF and SRS. I will invest 15% of my take home income as instructed in Ramsey’s Total Money Makeover. I won’t need to do more than that though.
Baby Step 6 – Pay off your home early
I have a private home mortgage with an interest rate that is rising quite fast. I am planning to sell it off a year or two later. I will try to purchase a smaller place without borrowing money. Then I will be debt-free and have completed Baby Step 6.
I will do a separate financial plan for my housing need and see how it impacts my budget.
Baby Step 7 – Build Wealth and Give
I want to build my passive income to surpass my expenses. Does throwing everything into my retirement fund make sense? If this portfolio is made up of stocks or ETFs that pay dividends, then I will be building my passive income along the way. There should be no conflict.
I have set a tight deadline. I think it makes sense to save as much as I can till 2026.
Is the Singapore Government Reading Dave Ramsey?
As I learnt more about the Dave Ramsey’s principles, I am amused how much the Singapore Government mirrors his principles.
- The OA acts like forced savings for Baby Step 5 and 6.
- The MA resembles the Health Savings Account (HSA)
- The SRS is like the Roth 401K
Dave Ramsey Budgeting
The first vehicle to climbing the Baby Steps is to create a monthly written budget. A budget is a plan for how I am going to spend my money.
Dave Ramsey subscribes to zero-based budgeting. It means giving every dollar a job to do: spending, giving, saving or paying off debt. Every dollar is given a purpose. He called it “being intentional with money“. Put the extra money to work towards goals based on the current Baby Step that I am on.
I find this idea intriguing – being intentional with money by assigning every dollar a job. I’m a competent saver. My challenge is knowing what to do with the money I save. Initially, I left them in my bank account with low interest rates. When I try to invest, I often get impatient and choose the wrong things to invest in.
I hope that by setting money goals based on the Baby Steps I am on will help me make better use of the money God gave me.
Household Budget Percentages
The next key feature is his recommended household budget percentages. Assigning a percentage of household income for a particular expense. For example, 10% for giving and 15% for retirement saving. The percentages change according to the Baby Steps. People with debts have different percentages from people who do not. People saving for a house differ from people who are saving for retirement.
I am used to the practice of putting 10% aside for tithes. For other expenses, I sometimes use price caps. For example, I have a daily price cap on my lunch. I think setting percentages and planning these expenses is a better and more balanced guide.
Make a Budget in 5 Steps
Dave Ramsey budgeting is a 5-step process:
Budget Step 1: List Your Income
Track all net income. This means every dollar that come in after deducting taxes and anything else that’s taken out of the paycheck.
This doesn’t really work in Singapore since we do not have a withholding tax system. I have to budget for my taxes as an expense.
I’ve also decided to include my employer’s contribution to my Central Provident Fund (CPF) as an income line because I want to tithe that although I have no access to it.
Budget Step 2: List Your Expenses
List all expenses. Both fixed and discretionary expenses. Here is where the budget percentages come in. Mine would look something like this:
- Tithing – 10% of my income
- Gifts – 2% of my income
- The Four Walls – top bills to cover:
- food – 5%
- utilities – 1%
- shelter – 10%
- transportation – 2%
- Other essentials – health (5%)
- Extras (Here’s the fun part: entertainment, fun money, restaurants, etc.)
- Month-specific expenses (Prep for month-specific expenses such as birthdays and anniversaries?)
- Sinking funds (for vacations, seasonal purchases, semi or annual expenses)
Deciding on the list of expense categories and sub-categories were time-consuming. I had to revise it several times in the first month as I didn’t anticipate sufficiently. I suspect I may have to revise again when I start work and the type of expenses may change.
I have also decided to plan an annual budget in addition to the monthly one for 2 reasons:
- I think it is a good reminder for my annual expenses
- It is beneficial to me to see the annual totals of my various expenses
Budget Step 3: Subtract Expenses from Income
Subtract all expenses from income. According to zero-based budgeting, this number should be zero. For me, I am sure I am going have extra money left over. This is the time to re-allocate the extra money towards the money goals I set.
Budget Step 4: Track Your Transactions
The written budget is just a plan. To implement, I need to track every single income and expense. I must account for everything that happens with my money all month long.
I have tried to do this before. It is not easy month in month out. I think it helps if there are fewer payment methods. For example, credit cards. I have decided not to use them unless I have to. I’m down to debit card, cash, bank transfer and GIRO. I have also set up a tracking sheet using Google Sheets. I can call it up to update anywhere I am.
One benefit of tracking is awareness. I noticed what I tend to spend money on. Tracking also mean adjusting.
Budget Step 5: Make a New Budget Before the Month Begins
Dave Ramsey advocates planning a new budget every month. There should not be major changes but it allows the inclusion of month-specific expenses.
To make this work, I have booked time for budget revision in my calendar.
Ramsey, D. (2013). The total money makeover: A proven plan for financial fitness. Nelson Books, an imprint of Thomas Nelson. [ Affiliate link] – The Total Money Makeover outlines the 7 steps in the plan and provide key information on each step.
Ramsey D. (1998). The financial peace planner : a step-by-step guide to restoring your family’s financial health. Penguin Books. [Affiliate link] – The Financial peace planner offers more detailed discussion and rationale behind the Baby Steps and their sequence.
Ramsey Solutions. (2022, October 4). How to win with money in 7 baby steps. Ramsey Solutions. Retrieved January 4, 2023, from https://www.ramseysolutions.com/budgeting/how-to-win-with-money-in-7-easy-baby-steps
Ramsey Solutions. (2022, November 10). How to make a budget: Your step-by-step guide. Ramsey Solutions. Retrieved January 4, 2023, from https://www.ramseysolutions.com/budgeting/how-to-make-a-budget
Ramsey Solutions. (2022, October 20). How to build wealth at any age. Ramsey Solutions. Retrieved January 4, 2023, from https://www.ramseysolutions.com/retirement/how-to-build-wealth
Ramsey Solutions. (2022, October 20). How do I save for retirement, college, and pay off the mortgage at the same time? Ramsey Solutions. Retrieved January 4, 2023, from https://www.ramseysolutions.com/retirement/retirement-college-mortgage
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