Blog #10 Mind Your I’s and E’s

I talked about the personal balance sheet in the previous blog.  I am even more excited to talk about the personal income and expenditure statement, the topic for today.  As the phrase is a mouthful, I’ll just call it the “IE” statement.

Your IE statement is a record of your total income, expenses and savings over a period of time, usually one year. This is unlike the balance sheet (Blog #9) which is a ‘point-in-time’ snapshot of your assets and liabilities.

Constructing an IE statement is easy peasy. Using a T-account format, simply list all your income sources on the left-hand side, and your expenses on the right-hand side.

For most Singaporeans, the income side will look something like this:


Salary and bonuses
Less your CPF contributions
= Take-home income
+ Interest
+ Dividends
= Spendable Income

Assuming you update your IE statement annually, all the above incomes would be for the past 12 months. The last line is the income you can spending freely. You can’t spend your CPF savings freely because there are many restrictions on CPF withdrawals. This is reason for subtracting CPF contributions from gross salary.

On the expense side, it is useful to separate your expenses into “essentials and unavoidables” and “discretionary”. Below are examples of each category.


  • Taxes
  • Household groceries
  • Eating out
  • Utilities and conservancy fees
  • Phone bills
  • Domestic help
  • Transport
  • Insurance premiums
  • Healthcare
  • Personal effects
  • Loan repayments


  • Eating out
  • Transport
  • Travels
  • Fashion
  • Hobbies

If you’re seeing double across the two categories, you are right. Eating out can be basic (hawker center, most food courts) or deluxe (Michelin-star restaurants). Basic is a non-discretionary expense. Deluxe is a “nice-to-have” that can turn into a “wished I didn’t have” if you go overdrive.

Other examples of deluxe – Owning a luxury car, going on bespoke holidays, splashing on designer wear, collecting fine wines and watches, and other stuff that define the “good life”. What is discretionary to a four-figure salary earner may be defended as an essential for a five-figure earner. It isn’t productive to quibble over this. What’s more important is to calibrate your lifestyle to your earnings and station in life.

In my previous blog, I mentioned net worth as being a key performance indicator that should be carefully managed. The counterpart to net worth in the IE statement is savings. From the IE statement:

Savings = Total income minus non-discretionary minus discretionary expenses.

Saving has been covered in previous blogs (see #3 to #6), so I will not repeat. But I do want to emphasize the connection between saving and net worth (i.e., between your IE statement and your balance sheet).

The connection is this: every dollar saved becomes part of your assets. Initially, your savings may be parked in a low-yield bank deposit, but some of it might (should) be transformed into other higher-return assets like bonds, stocks, investment funds, property etc. to grow your assets. In the process of this transformation, you build a diversified portfolio, always a prudent thing to do.

Back to IE-balance sheet connection: the more you save, the faster your net worth will grow! A simple but powerful truth.  Conversely, if you are a big spender and save little, your IE statement will suck and so will your balance sheet.

As important as the IE statement is for keeping, few people bother to construct their own IE statement. Certainly not millennials. A recent Business Times survey finds that none of the millennials interviewed had ever tracked their spending formally. Fewer than 10% said they had a rough idea of where their money was going. Most spend their money by running a mental tab. When probed further, a common refrain was: “OMG, I didn’t realize how much I was spending”.

You can do better than that! With an IE statement, you have the means to keep track of where your money went. And if you ever need to pare down spending, discretionary expense is the first place to zoom in.

Don’t wait till the year is over to do that. You can draw up a cash budget to track your expenses month by month. A cash budget is a projection of your income and expenses for the next 12 months. In other words, it is a forward-looking tool that allows you to tweak your discretionary expenses until you see a healthy level of savings by the end of the year . Of course, these plans are only on paper or a spreadsheet. You need to follow through by “walking the talk”.

If your financial situation allow, an effective method to be a disciplined saver is to default a certain percentage of your monthly salary to savings first before spending. This is the “pay yourself first” strategy discussed in Blog #3.








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