Here, we dive into the art of handling money and maintaining financial provisions for all times. Putting elements into perspectives with you is Sam Yoong.
What is budgeting?
It is simply a way of handling money. “Why bother about budgeting?” you may ask. Well, let’s go into this deeper.
Budgeting acts as a plan to track and set limit to your spending. The plan aims to help you and your family to save money, cut down expenses, make investments, gain protection from insurances coverage and to achieve short-term plus long-term goals.
The pre-budgeting stage
Before getting started, it helps to do some research and find out more about investments, insurances, and other related areas. The various information sources on these areas are like magazines, newspapers, web sites on the Internet, even courses and workshops.
Preparing your household budgetAs highlighted below, are the step by step approach:
What is budgeting?
It is simply a way of handling money. “Why bother about budgeting?” you may ask. Well, let’s go into this deeper.
Budgeting acts as a plan to track and set limit to your spending. The plan aims to help you and your family to save money, cut down expenses, make investments, gain protection from insurances coverage and to achieve short-term plus long-term goals.
The pre-budgeting stage
Before getting started, it helps to do some research and find out more about investments, insurances, and other related areas. The various information sources on these areas are like magazines, newspapers, web sites on the Internet, even courses and workshops.
Preparing your household budgetAs highlighted below, are the step by step approach:
Identifying goals to be achieved
The goals here, could be long-term, short term and anything in between. They could be financial goals, education goals, etc. – be it planning for a holiday, to provide education plans for your children, or saving up to buy a new house and car.
You would want to break down the long-term goals to a series of short term goals. While this helps you in making re-adjustments to the original budgeting plan (should there’s changes that need to be made), it does facilitate when you review the progress from time to time as well.
Setting up your budget’s layout
In terms of income, it could be your permanent job’s monthly salary, freelance works’ pay, dividends, bonus and so forth.
Things that fall into the expenses category would be like money spent on meals, travelling, doing regular activities be it smoking, drinking, golfing, clubbing or hanging out leisurely somewhere.
Everyone have their own respective sources of income and types of expenses incurred; hence resulting in different budget layouts across families.
For effective budgeting, design a layout that accurately represents you and your family’s lifestyle.
To arrive at the amount of budgets to allocate for your spending
In order to make things easier, start off with any receipts, bills, and other similar items that you have in hand. Take a look at them and start jotting down the expenses incurred for the past few months. By doing this, you would roughly have an idea on how much and, on what items that you and your household spent on.
Based on the amount of money spent, you would be able to set realistic and achievable budgets for your expenses.
Knowing on what items you spent on helps you evaluate whether certain items are worth spending for, whether you have overspend on certain things, and to think of areas where you could cut down on your expenses.
Keeping track of future spending and to calculate your nett income
While following your budgeting plans, take record of your expenses on a monthly basis; doing the same over the few months to come. This will measure up to see if your expenses stay within the budgets as planned.
At the end of each month, sum up all the incomes that you have, and do the same for expenses incurred. To arrive at the nett income, subtract the total expenses from the total income.
Should you have a positive amount for your nett income, let me just say “good job, keep it up!” and to suggest saving and investing the money.
If you’re targeting to save money on a long-term basis, try to avoid saving in accounts where you could easily redraw money everytime when you so desire, like savings account as opposed to a fixed deposit account.
For those who arrived at a negative amount for nett income, look for areas where you could cut down on spending. Spot for the big spending but at the same time, not to neglect the small spending as most of the small spending are intuitive purchases and add up pretty quickly towards the end of every month.
Evaluate your progress consistently
By keeping record of your total nett income on a monthly basis; you should be able to tell through time, on whether you are doing well according to the budgeting plans. Make adjustments to areas where you feel that you could do better, in terms of spending, saving, doing investments, and so forth.
References:
** Time to part but do remember to look out for more insights on money management, up next!
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