You can use 5S – a quality improvement tool – to budget your spending. Our QI coach – the Process Transformation & Improvement team - shows you how.
Let's be honest, not everyone is savvy with their finances. And it's easy to forget about your financial goals. Such is the case for Sally.
Sally knows the importance of saving for retirement and intends to do so with her monthly salary. However, she enjoys shopping and often spends without thinking. Just the other day, she bought the latest model of Brand X handbag. She was elated about her purchase until she got her bills. Just like this, her hard-earned money was gone again.
Sally decides she has to do something to manage her spending habits before she hits rock bottom and recalls reading a story on SGH Infopedia about the 5S methodology.
For the uninitiated, 5S is a Japanese workplace organization technique which aims to improve the efficiency of work processes. It encompasses the idea of “A place for everything and everything in its place” and follows these 5 steps:
Sally decides to use 5S to manage her finances. How does she do it? Let us first look at her typical monthly expenditure.
First, Sally sorts her expenditure according to necessity. Looking at her bank statement, she sorts her expenditures into different categories such as shopping, food and transport. This gives her a better overview of her spending.
It is now clear that the bulk of her expenses comes from shopping and transport. Sally is horrified at the amount of money that she has mindlessly spent on bags and clothes, which are more of unnecessary Wants than essential Needs.
For Straighten (also commonly known as “Set in Order”), Sally decides on the amount she is willing to allocate to the different categories. Upon spending, she immediately records her expense in an app. This helps her keep track of how much she is spending on the various categories so that she can be mindful when making purchases.
An example of an app that Sally uses to manage her expenditure
Shine is about eliminating waste. Sally goes through her bank statement and identifies items that she has been wasting her money on. She quickly realises that she spent $100 on GoGo taxi this month when she could have saved $60 by taking public transport instead! Additionally, she looks out for automatic payments for services such as her Nettflick TV subscription (which she hasn’t been using in the last month), and terminates them. Just by cancelling one subscription, she saves $40 a month, that’s $480 a year!
Sally realises that while she can commit to saving now, she could easily revert to her old spending habits the next moment. Hence, Sally is determined to cultivate the habit of sorting, straightening and shining her finances. She ensures that all her receipts are keyed into the app before she goes to bed every night. She reviews her expenditure weekly to make sure it is within her budget.
The last and hardest step of 5S is to Sort, Straighten, Shine and Standardise consistently. Sally understands that building wealth requires consistent attention and self-discipline. To meet her long-term financial goals, she sets aside time every few months to review whether her money is being put to its best use. She highlights months where she expects herself to spend more (e.g. December, where she will be spending an additional $200 on Christmas gifts) and adjusts her budget accordingly.
Having used the 5S methodology to manage her finances, Sally is now more financially savvy. Perhaps you can be a Savvy Sally too!
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