Whether you are living from paycheck to paycheck or earning six figures a month, you need to learn to basics in budgeting. It is really important that you know how much money you have and where you’re money is going. If you don’t know how to budget, chances are you can’t be sure if your money is being used the way you want it to.
Know how much you are currently spending
The first thing you have to do is to know how much you are spending. Take your time to write down your expenses. Start with the regular and fixed payments you have, such as your rent, insurance, debt and taxes. After that you can dig deep to your fixed monthly expenses such as food, transportation, clothing, utilities, subscriptions, etc.
Keep your billing statements, receipts or checks and sort them into sensible groups, such as food, clothing, entertainment, utilities, etc. It is also advisable to keep a “sending notebook” handy, so can jot down directly whatever you are spending.
What are your goals for budgeting and how much you are willing to sacrifice?
You might want to pay off your debt, save for your future, save for travel or just be able to get by to your daily needs. Whatever your reasons are, you have to be able to determine what you want to achieve financially and figure out ways on how to achieve it.
Let’s take this example:
I would like to go to Thailand next year (sometime in July or August) and the value for this tour would be about P50,000 for 4 days/3nights. This budget would include airfare, hotel accommodation, tour, food and pocket money.
How will I be able to achieve this goal?
As what Napoleon Hill said, “Great achievement is usually born of great sacrifice, and never results of selfishness.”
Though I still have 9 months left to reach my goal, I need to take action and start saving. If you would divide 50,000 to 9 months, this would mean that I need to save P5,555 per month to be able to achieve my goal. That’s still a lot of money! Is it achievable? Yes!
For someone who’s in a budget, it could mean restricting or cutting back on some unnecessary expenses. Here are a few simple ways to reduce expenses:
- Walking a few blocks instead of taking a cab
- Making your own coffee
- Cut down the number of times you spend in the mall
- Shop at thrift stores
- Cook your own meal
- Do your own laundry
- Turn off and unplug appliances that are not being used
Allocate your fund
To be able to achieve you goal, you should develop the discipline to save first before spending. If you spend first, there is a big possibility that there will be nothing left to save.
Earnings – Savings = Expenses
Be realistic in your budget. Know that budgeting is all about making sure that you use your money wisely. With your monthly earnings, determine the number of person that relies on it and when your next payment is.
If you feel that your earning is not enough to pay for your expenses and savings, look for ways to reduce your expenses. You might also want to consider looking for another source of income.