Budgeting is an essential step for any financial plan, but how many of us know exactly how to go about doing it?
Doing your budgeting well can help you get closer to your financial goals, be it a short-term one like saving up for a holiday, or a long-term one like saving up for retirement.
In the long run, having prudent budget management skills will also help you manage and grow your wealth.
When planning for your personal budget, here are some things you shouldn’t overlook:
1. Understand how much your net income is
On paper, your salary may look pretty decent. But after deducting taxes, CPF, bills, and other monthly essential costs, the amount may seem much smaller than before. That’s why it’s important to think of your income in terms of net income.
This is what you are left with each month to spend and save. If you are paying off a loan like a personal loan, don’t forget to factor this into your monthly expenditure as well.
2. Organise your expenditure using a filing system
As important as setting your budget is keeping track of it. It is easy to miss out on some bills or expenditures when it is swept away with a pile of other documents.
Create a filing system for your bank statements, credit bills, and so on so that you can refer to them easily. Or, if you prefer, you can go digital and keep track of it with an excel sheet, or using a financial tracking app.
3. Understand your spending needs and identify how much you need for various expenses
You can find plenty of budgeting guides online, but some might not work for you, because everyone’s spending needs and habits are different. Instead, it is vital to identify your unique spending habits and priorities.
For example, if you have children or elderly parents to take care of, you need to factor in the costs to provide for them. Or, if you are a heavy shopper, you might want to break down your shopping budget into further categories, like clothes, cosmetics, gadgets, and so on.
Once you have understood your spending needs, put down a suitable fixed budget for every category every month and stick to it.
4. Prioritise ‘needs’ and cut down on ‘wants’
One golden rule for budgeting is to prioritise the ‘needs’ and cut down on the ‘wants’. Is it even called a budget if you don’t have to restrict your spending? Making adjustments is necessary, and this should begin with the luxuries you spend on.
Identify what these unnecessary expenditures are, and consider how you can scale back on them. For example, you could spend less on eating at fancy restaurants, buy fewer clothes and bags, and skip the latest phone upgrade.
5. Commit and stick to that budgeting plan!
Planning a budget will be futile if you don’t stick to it. But as anyone who has tried budgeting will tell you – sticking to it is the hardest part! Here are some tips on how you can commit to your budget:
● Set a realistic budget
In the first place, don’t set a budget you know you can’t follow. Take into account your current spending habits before you set your budget and make sure it isn’t too drastic a change.
If your ideal budget is too far off from your current spending situation, you can take small steps to change it, rather than expect yourself to transform within a week or two.
The danger of an unrealistic budget is that you will not follow it, and become even more unmotivated to take charge of your finances in the future. Instead, setting achievable standards will encourage you and ease you into the habit of saving.
● Focus on your financial goals
Most of us do budgeting because we have something we want to achieve at the end of the day. So, motivate yourself with the thought of this goal!
For example, if it is a holiday you are saving up for, you can picture yourself at your vacation spot whenever you need to make a spending decision. If you really want to reach your goal, that thought will quell your temptation to spend unnecessarily.
● Give yourself little rewards as motivation
Following a budget isn’t easy, especially when it requires changes to our spending and lifestyle. But stick to it for a month or two, and you’ll be pleasantly surprised at the results.
Reviewing your savings and budget every month will boost your motivation once you see that your efforts are paying off. Every once in a while, you can even afford to give yourself a little reward, like splurging on a little something you’ve been eyeing!
This will further motivate you to continue with your budgeting habits.
Sound financial planning is key to financial independence
It’s important to do your financial planning right if you want to grow your wealth and reach financial independence.
But if you are still struggling to repay multiple debts, the first step might be to take a debt consolidation loan to better manage it. Do reach out to us and our loan specialist will be more than happy to assist you.
