Summary
This is a lot to digest for a proper budget. But here are the key subjects from this article:
1. Budgets are overrated. They create stress and we don’t stick with them.
2. All you need is a spending allowance. Instead of tracking dozens of categories of spending, know how much you can spend per month, what should be your spending allowance? How much should be kept aside after you’ve covered big expenses and savings?
3. Forget manual spend tracking. Keep an eye on how much of your spending allowance you’ve spent with Mint or by simply using one credit card for everything you buy. Cash is dead.
The new millennial doesn’t think much about going with the “Financial Planning” or “Preparing for the rainy days”. They are always a firm believer in not making the money channelized but rather finding a new source of incomes.
Keeping the 2020 and the current uncertain pandemic in our focus we need to realize the importance of planning, budgeting, keeping things under-check and making sure we don’t lose sight of our expenses.
Still many people think budgeting is not required and senseless, it’s very boring and most of us never stick with it. Let’s alter that. Let’s move forward with an easy way to (not) budget in just minutes a month. Let’s take a few steps at a time and learn how to take our budget forward in the way that it is not considered as a burden and is easily followed and manage.
A budget should be like a well-rehearsed dance routine or an effective diet, which does not make things difficult and at the same time, it can be easily followed along with some super-amazing results when practised with consistency.
Classic and traditional personal finance and investment books usually make you believe that if you just create a budget and stick to it religiously and follow it to the PERIOD, then BAM!
Right at that moment, it’s like all your money problems will be resolved. You shall be all worry-free but military-style budgeting has not gotten anybody who has ever tried budgeting knows it’s the complete unrealistic thing to maintain, if not realistic it is very difficult to be on track with the planned budget.
It is known through studies that only one out of every three individual create a formal budget every month to align their income. We all know that we should budget, but you also understand that if you don’t do it with complete conviction and determination you shall not be keeping yourself up to the promise.
Learning how to budget the conventional and old school way isn’t a problem, and here’s why:
• You can visit any one of hundreds of personal finance blogs to read about budgeting techniques
• You can download free spreadsheets here and on countless other sites
• You can pick up one of the dozens of books
• You can use any one of dozens of budgeting apps many free
And even if you write down every RUPEE you spend for 30 days (which, done by hand, is a complete pain to manage every time), you’re still a human.
Creating a budget that you would stick to is a “Game Twister” because of the way it is formulated. When done with ownership it is often the first step and very essential step on the road to financial freedom and liberty. It might not be as easy and simple as it sounds because in practice it can be complicated and might require the help of various tools and approaches. We have been deliberating over it and wanted to provide you with something which helps you construct and build a budget quickly so you can get started securing the benefits right away without any delay? We’ve got a fuss-free, three-step resolution for you.
But first, we need you to figure out few things….
The first is to decide on your goals as each person financial goals and objectives are different than others. Some common reasons that are popular among masses to save more are to:
• Save for a big purchase, such as a house or car
• Prepare for the long-term (children education, marriage or retirement, etc)
• Have enough money to treat loved ones to gifts
• Stop living month-to-month (salary to salary)
• Pay off a liability/loan
You may be saving one or all of these. Once you have realized what they are and what you want to save for, be specific on the amount you aim to save and the timeline. Make sure to set a milestone for each step achieved to be successful in overall securing the goal or goals that you have set for yourself.
If you want to buy a car, your goal may be to save PKR 12, 00000. If you’d like to save up for your children education, how many years do you have in hand before your child has to attend? Being precise and definite means you’ll know how much of each salary you’ll need to save to achieve the planned goal.
Okay. So the goals are set and have been decided for, one thing that many people speak about is the spending plan, which is the very preliminary step that would help you in quickly creating your budget…
What is a simple spending plan?
A simplistic spending plan is an easy way to budget that helps you save money, payout the debt, pay the liabilities on time, and still provides you with the freedom to spend money on things you value and feel like spending with due reasoning of course.
Recently, a someone mentioned their blog that someone wrote their experience was “I was in the doctor’s office waiting for my physical and I picked up an issue of lifestyle Magazine and randomly opened page that recommended the same thing: stop the military budgeting!”
While another factor that should be in consideration and play an important role in balancing your whole finance circle is CREDIT CARD.
We all know like everything it is also a two-edged sword, it has its benefits, but a person holding the card should also have super control to not “OVERSPEND”, means not to utilize the card until you can 100% guarantee that you would be able to pay back in full, so no further interest adds into the bill.
That brings us to an important question…
So should you use Credit Card or Debit Card?
An age-old question is….like Chicken came first or the egg?? Same goes here as well, If you tend to buy things first and THINK about how you can pay for them later, best to use a debit card. But if you’re comfortable with shopping from Credit Card and only charging what you can pay back completely every month, credit cards are more advantageous than most of the debit card you own debit cards for getting the hold of the line of your expenses.
The bill you receive from credit cards can act as a spreadsheet for tally, to analyze the expenses while looking it at a spreadsheet in detail. This is where the real fun begins. You may also find some of your budget compatible credit card that suits your needs; you just need to respond while using it. To ensure you don’t overdo with your expenses you set spending limits, and there are many apps and mechanisms available which send an email or text when you hit the ceiling with your expenses. These apps can be a potent and effective…one effort from your end is also required. Of course, it is to remember to log in occasionally and make sure the selected and elected categories are right and view your tallies. But even if you don’t, that’s OK. The important thing is that data is there if you need it. If you want to go back and see how much you have spent and where….
What you need to know are your fixed monthly expenses. Things like:
• Your monthly rent or bank loan
• Utilities and other commitments for any spending-head
• Loan payments to any friend/colleague/acquaintance
• Credit card payments (that should be paid each month)
• Desired savings, investments, or any other additional payments
That last and one of the most important steps before you start the actual budget planning and vital one is that you calculate how much you want to save, invest, or use the money to pay the debt first. To find what’s left, do the following:
• Enlist you Total you’re fixed monthly expenses (your Nut-which you have to sort through every month).
• Figure out your net (take-home) pay, per month that you can spend.
• Subtract your Nut from your take-home pay.
The amount that remains after the subtraction is the amount what’s left to spend; also you can call it as your spending pocket money (discussed below). You can spend this on whatever your heart desires: food, petrol, shopping, travel etc.
The three important steps that need to be understood are mentioned below…
Step 1: How much money is coming in each month? Income
Begin by adding up your monthly income. (A Microsoft Excel spreadsheet could make things manageable and easily traceable for this type of tracking.) Be sure to include all sources of earning, including money that is being earned from the jobs, if coming in from any investments, and financial support or government funds. Money earned should be calculated on an after deductions basis, meaning the money you take home after all the items being cut-off from your lists like taxes and binding cut-offs.
Step 2: How much money is going out of the Pocket? Spending
The next step that you should be taking is to write down all your expenses. This includes your rent or bank loan payment(if you have taken any), utility bills such as gas, electric, water bills and internet money, plus the money you use on groceries, eating out, gym and swimming memberships and child expenses (if you have any). Your “SPENDING” also includes expenses payment toward debts, such as credit cards payments, home loans and car loans instalments. During festival months like Ramadan and Eid-ul-Adha, do keep a little more cushion for gifts and expenses related to it also keep some aside for special events.
Step 3: Think about what changes do you want to make? Things which need Tracking and modifications
Record the ratio of your income versus spending. If you are earning more than your expenses, congratulations! In the end, if you are left with some extra money, dedicate that toward a financial goal more like putting your money in the investment plan, like saving for your own house, paying the loan or building yourself a retirement fund. You’re like many millennial in Pakistan your budget may show you you’re spending more than your take-home salary. Use your budget in a way to have an insight to see exactly where you could trim some your expenses (maybe one thing can be like dining out less frequently) or strengthen or increase your income (perhaps taking a part-time job or maybe take-up on tuition if you are good at it).
Constantly trying to Track your spending manually is pointless
It’s a really difficult thing, so we don’t expect you to. Usually, there are things you pay for less than every month, and these expenses cannot be made part of our budget but when these expenses arise they can cause a big dip in our pockets. Like car repairs, home improvements, unexpected trips and vacations, holiday gifts etc. For you, these less predictable expenses to some extent can be manageable one thing can be to get insurance, well you may think insurance is a lot of money out from your pocket in one swift go but at the same time it also takes off all worries related to your car accidents, theft or any damage caused by rain or other natural calamities. As being a homeowner you would also have many unannounced and unexpected costs creeping up on you. Be prepared for that… so buying insurance means relieving you from the stress of car worries. So here’s what this means. Accounting for, and “pre-spending,” every Rupee you make can be a financial mistake avoid doing that.
According to the American Psychological Association: “Money (or its lack) is the nation’s most common source of stress, Making a detailed budget a widely advised fix only makes things worse.
Cleveland financial planner Kenneth Robinson based on his decade of work with clients; says that the problem is that people hate to think about where they’ll need to cut back.”
Of course, in the time of crisis, you may need to spend money on the important stuff, set your priority and spend less on the fun stuff. That is sad, but it’s also why you should maintain your account a little and have a buffer.
Then there’s the issue of having NO leftover money
What do you do then? Right, a question unfortunately many of us are facing this situation in COVID-19 situation that many people have used up their savings and everything due to salary cuts and loss of jobs and other severe conditions…
OK. So take a deep breath and understand that if money is tight, it’s possible there won’t be much (or any) left to spend after you’ve managed your necessary monthly expenses and what you hope to save. In this COVID-19-term, you should reduce but not eliminate your savings goals.
Look at big places you can save, like during this crucial situation you can opt for certain options that might seem unconventional before:
1. if you a spare space rent it out for some immediate income
2. restructure your mortgage, ask the lending agency to shuffle it, as during these stress-full times
3. Try and look more and more ways and means to earn money
Always remember “Cutting little things gets you a little bit of money. Making big changes gets you a lot of money.”
Extra budget tips
Everyone has their tips and tricks for creating a budget and sticking to it. Here are a few of our favourites.
• Find a system that works for you. Some people like spreadsheets, while others prefer smartphone apps or even old-fashioned pen and paper. Keep experimenting until you find a method that works well for you.
• Create your own customized “money rules.” Make a unique promise to yourself, such as, “I will keep my spending on discretionary items to a maximum of $40 per week.” Small, actionable steps can help keep you from feeling overwhelmed.
• Experiment with different intervals of time. It depends on you absolutely what would you prefer to budget planning Try it! There’s no reason to stick to a monthly cycle if it doesn’t serve you well.
• Seek out support. Try bringing your spouse, significant other and/or kids on board with your financial goals. With their support, it can be easier to build and maintain a budget.
• Use Budgeting Apps
• When it comes to budgeting, technology is on your side. Some apps can walk you through the process of setting up a budget, and then track your progress. Instead of manually evaluating your spending to make sure you stay on track, an app can monitor your spending and deliver the information to you.
• Separate Needs and Wants: Ask yourself: Do I want this or do I need it? Will spending this money get me closer to my financial goals or further away? Can I live without it? Set clear priorities for yourself and the decisions become easier to make.
A budget is a powerful tool to set priorities, achieve goals and build a solid foundation for your financial future. If you’re working to build better money habits, A budget allows you to have control over where your hard-earned money goes. It empowers you to be aware of how you spend and save, which can reduce financial struggles and worries. Budgets should be tailored by you to understand your needs and life circumstances. But it doesn’t have to be difficult to make one. Here are some things to keep in mind that you should take with you.
Don’t just plan, but the plan into Action: Match your spending to when you receive your salary. Decide ahead of time what you’ll use each pay for. Ask yourself one important question: Have I allocated money for my necessities (housing, food, utilities, transportation, etc.)? Have I put money aside for my loan payments, set aside some for unexpected expenses, savings and the fun stuff? This will protect you from going into debt further because you won’t rely on credit to pay for your living expenses.
Look forward Ahead: Getting on track with a budget might take a month or two for you to adjust. You’ve lived all this time without a properly designed and executed spending plan, so give yourself ample time to adjust. Don’t be afraid to ask for help from your friends or family or your colleagues if things aren’t falling into place help is just a phone call away.
This does two glorious things:
1. It eliminates worry. You stop wasting time thinking about stupid things likes “Did I pay the electric bill this month?”
2. It protects you from yourself. Automated finances make it harder for you to sabotage your money. No more delayed credit card payments (and the associated fees and damage to your credit score). No more skipped IRA contributions.
Are economic troubles causing you to consider your financial situation? You may be worried about losing your job or how much debt you have. Avoid a potential personal financial crisis; get back to basics with a budget you can stick to. Here’s how to start: the last thing which we would recommend to save and earn is through getting an investment plan, be it the children education plan, retirement plan, twenty years maturity plan, marriage plan for your children or a plan to secure your spouse in case of your demise. These plans do not only keep your money safe but over time as the value of money decreases it increases the value of your deposition to many folds. The increased value of the money would help you to carry out the job for which you did set aside the money for, so while making a spending plan and then moving on to budgeting make sure you do keep aside some money for the investment plan, securing your and your family’s future in case of any foreseen circumstance this plan would act like your knight in shining armour. It would protect you against all financial hardships and bring stability and financial stability.
