Sticking to a budget is a challenge a lot of people attempt to do but fail to uphold. The internet contains conflicting opinions on this financial practice. Some swear by it; others deem it completely unnecessary for financial success.
As a financial advisor and a budget-convert, I can tell you the things that I’ve experienced and realized first hand when I changed my mindset and began this journey of segregating my money.
Why should we keep a budget?
Avoid falling into debt
Setting a budget means making sure your expenditures are kept below your income. If you don’t set a budget, you’re more likely to overspend on things, which could lead you to take out loans or rely heavily on credit cards when the going gets tough.
Achieve financial goals
Financial goals have two aspects: the amount, and the time to get to that amount. Because budgeting requires you to be aware of how you spend, you can project how much you can save. This will give you a clearer picture of when you’ll get to your desired amount, which will motivate you to stick with the program until you hit it.
Prepare for the future
Budgeting helps you adjust your spending in advance in order to make room for a major purchase in the future. For example, if you’re planning on starting an insurance policy with investment, increasing your budget for “savings and investments” while decreasing the amount for “entertainment” a few months before will help alleviate the impact of the premium payments.
Retire happily
If you’ve done your budgeting properly, then that means you’ve saved enough to see you through retirement. No more worrying about relying solely on a pension because you’ve already made a comfortable nest.
Common Misconceptions About Budgeting
It’s restrictive
Budgeting is setting specific amounts for specific things so that you can spend the money that’s left over from paying off those things freely.
Without budgets, you’ll always be unsure of how much you’re spending and for what things. When the time comes that you need to make essential big-ticket purchases, you will be more restricted to spend because you’d find that you’ve spent the portion of your income for this purpose on useless things like five streaming subscriptions and daily food deliveries.
You don’t have enough money to budget
You may think that all your income goes to essential living expenses anyway, so why bother with budgets?
Actually, the less income you have, the more important it is to budget. For instance, you might think that ₱800/week for groceries is a fixed cost, but if you set a budget of ₱600/week, you’d be forced to work within that amount and find that you can live without that bag of chips or cans of soft drinks.
How to Budget Effectively
Know where your money goes
Spend a month or two meticulously listing down what you spend on, then figure out which major categories your purchases fall under.
Evaluate your spending habits
From the categories you came up with, determine which ones fall under necessities and which are wants. Be strict with yourself. Coffee from Starbucks is not a necessity. You’ll realize here whether you’re spending more on necessities or wants.
Determine the percentages
Figure out which necessity is taking up so much of your income. Maybe you can cut back on turning on the air conditioner to save on electricity if that piece of the pie is too big. If you see that you’re spending a sizable chunk on Netflix, iFlix, HOOQ, Spotify, and even cellphone load, you can quit one or two to save more.
The goal is to find corners to shave off in order to increase our savings.
Make yourself an expense
Most people treat saving as an afterthought, something less important than a bill that’s due. To kind of trick yourself into saving, list yourself as one of the bills that are due, and put that amount into your savings account. After all, you worked hard, so you’re entitled to get paid!
Set a goal that’s achievable within your time frame
There’s nothing that can break determination like a goal that’s too ambitious, to begin with. Set yourself up for success by making small goals you can hit over and over, like ₱2,000/cut-off savings, which can go towards your big goal of buying a home in 10 years.
The key here is for us to understand first our expenses and take necessary actions based on our goals. There’s no “one size fits all” approach as budgeting is relative to and a continuous learning for everyone. After all, we know more and should be responsible for our own finances.
Leave a Reply