Budgeting

Budgeting. Easy for some, extremely difficult for others. Budgeting, as the name suggests, is simply about creating a budget which is your spending plan. Whether it’s daily, bi-monthly, monthly, semi-annualy or even annually, a budget helps you track your earnings, expenditures and savings.

Budgeting lets you know if you’re spending too much on certain items and lets you have more control over your finances. Also, it lets you see which expenses can be cut down.

Most people’s difficulty with budgets is in the execution of the plan. While some, it is the actual planning to begin with.

So where do you belong?

  1. Trouble with creating a budget?
  2. Trouble with sticking to a budget?

Creating a Budget

Creating your budget from scratch is easy. Or you can go the super-easy way by simply downloading budgeting apps (spending trackers) or ready-made templates.

  1. Have a blank Excel file or Google sheet on your computer ready

We recommend using spreadsheets so the computations will be easy to do.

  1. Make a list of all categories you would like to track.

Categories consolidate your expenditures into homogenous groups. Categories like “Housing and Rent” could cover rent expense, taxes related to your home, dues paid monthly and the like. Another common category is “Groceries” which could be further categorized to “Food” and “Non-Food” so you can track your consumption levels of certain items.

A sample category list follows:

Earnings >> Salaries, Debts Collected, etc.

Housing and Rent >> Rental. Association Dues, Deposits, etc.

Utilities, Water and Entertainment >> Electricity, Water, Internet, Phone, Cable TV, etc.

Food and Groceries >> Restaurant Meals, Food Groceries, Non-Food Groceries, Pet Supplies, etc.

Clothing >> Mom Clothes, Dad Clothes, Son Clothes, Daughter Clothes, etc.

Transportation >> Car Payments, Gas, Commute Allowance, etc.

Insurance and Savings

Medical and Dental >> Medicine, Hospital and Dental Care, etc.

Holidays and Vacations

Emergency

Misc Purchases

Categories can be further divided into sub-categories to further classify your expenses.

But remember, the more specific you go, the more tedious actual tracking becomes!

  1. Fill in amounts for each of those categories and sub-categories for the month.

We begin with the monthly total input because most expenses are billed monthly and people calculate salaries monthly as well. Most people will have a ballpark figure of what they spend monthly and they input it into the right expense categories.Once inputted, this becomes the “Monthly Budget”

  1. Proceed to adjusting the budget to your need.

In this process, you may need to break down the budget into bi-monthly components, or even daily allocation (in case you want to track daily expenses). You may also go to an annual budget particularly if you’re planning on spending or saving a substantial amount.

  1. General Rule of 50/30/20, or 20-30-20-30 Rule

50/30/20:

Try to bucket 20% of your income into savings (Savings, Insurance and Investments), 50% towards necessities (Fixed Costs such as Housing, Food, Clothing, Transportation) and 30% for discretionary expenses (Variable Costs such as Restaurant Meals, Vacations, Shopping, Entertainment, Hobbies etc.).

If you earn Php15,000 monthly, this means Php3000 goes into your savings account, Php7500 is for your necessities and Php4500 is for your wants.

20-30-20-30 Rule

With Php15000, 20% still goes to savings or Php3000. 30% or Php4500 goes into housing. 20% or another Php3000 goes into other needs. And 30% or Php4500 goes to discretionary expenses.

If you are really trying to save, then adjust the ratioes and increase Savings and the Necessities Expense buckets by lowering Discretionary Expenses.

Sticking to a Budget

Once a budget is made, the next issue becomes compliance to it. Many people have problems sticking to their budget because they just do not have the habit developed. To develop the habit, you would need to discipline yourself for a few days to get used to the process.

Tips to start with:

  1. Track your daily expenses -Keep all your receipts in a separate section of your wallet or bag or just have a separate container. If you can account for your expenses daily, that would be great, if not, on a weekly basis, record these epenses.
  2. We wary of frivolous expenses -Most people do not allocate enough for their “Misc. Expenses” or they don’t think their daily Starbucks fix merits a record in their monthly “Food and Groceries” category. If something is a regular expense that you probably can not live without, put it in the normal categories. But if items are random like “Cheat Days” or “Pay Day Treat”, these are your miscellaneous expenses. You need to budget them but you know you can cut them out.
  3. Carry only as much money as you need for your daily requirements -As you go through your day, most of the things you will be spending on are paid via cash (lunch, commute, snacks, etc.) Carrying more than that can lead to unplanned purchases that can shake up your daily, then weekly, then monthly budgets.
  4. Save daily -From your daily allowance, plan to scrimp and save at least Php5, or Php20 or even Php50. Put this aside in another container when you get home. At the end of the month, put your additional savings in the bank. This is not your alloacted savings according to your budget but is extra.
  5. Pay yourself first -You’ve heard it before. From your salary, you should allocate 20% to your savings. If 20% is not possible, try and go for the closest number in thousands of pesos that you will put away. Do not use the same account as your payroll or disbursement account but put it into a savings account that you will probably not have much access to.
  6. Pay your credit cards in full -Credit cards are great to have but they have interest charges if you do not pay the bill in full and on time/ To make sure you do not have random expenses after earning so many points on your card, make sure you have allocated enough funds to pay for your card. The best way to do this is to not spend more that what you can afford and not more than ⅓ of your monthly salary on your credit card.
  7. Be realistic -If your budget is not realistic, you are sure to not stick to it. If you actually spend Php5000 on shopping but then you put Php2000 for it, you are setting yourself up for failure. To make this work, learn to manage it incrementally. You start off with Php4000 budget this month, then Php3000 next month and by the third month, you can now make it Php2000. Old habits die hard which is why people wean themselves for a few months.
  8. Baon -Groceries vs meals in regular restaurants are at least 80% cheaper. Even your baon vs the fast food restaurant meal could be at least 50% cheaper.
  9. Consult your calendar -Plan when you have days when you will dine out (e.g. pay days), your vacations, birthdays, etc. All of these could materialize into unplanned expenses if you are not prepared. In a month, it’s possible for a yuppie to be going out every Friday and spend Php500 for that night out. So allocate this is your budget. What this shows also is how much you spend on these activities and will let you think twice if you really do need to go out.
  10. Pay high interest loans first! -People may loan for various reasons but one common lesson is to pay high interest loans first. In order to have funds later on, it is best to pay these loans on time so no additional charges are incurred.

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