Easy financial plan we can all benefit from:
1. Ponder on your current situation, i.e. your road to personal budgeting begins
Welcome to personal budgeting 101. We will start from the top, which is to understand your current situation. It is time to reflect and think about how you have spent your year – financially. Have you been financially wise? Did you often make purchases you regretted later? Did you have any spending habit you wish to give up? Did you manage to save some money or is your bank account balance lower now than it was a year ago?
2. Know what you want to achieve, i.e. goal setting
Be realistic in your goal setting. If you earn $5,000 a month and has failed at all attempts to save, chances are your goal to save $ 30,000 by the end of the year would likely fail too. Especially if you are carrying a heavy credit card balance. Your goal is personal. You need to be honest with yourself and assess your lifestyle and spending habits. Set attainable goals. Such as:
- Clearing all credit card debts (Or if too much, clearing 75% or 50% of it)
- Clearing all credit card debts in 12, 9, 6 months etc
- Saving 15% of your income a month (Or save 5%, 10%, it’s still better than none. Remember: it has to be attainable!)
- Saving enough for the down payment of a car or home
- Save X amount by August for a trip to Gold Coast in December
3. Put pen to paper, i.e. write down those numbers
Take stock of your balances. Write down all relevant numbers, this include your total cash in hand, saving and checking accounts balances, credit card debts and other short term loans. Next identify your cash flow. How much you earn monthly and list down your monthly expenses. If you spend 10 ringgit everyday on a cup of latte, make sure to write that down too.
4. Now the planning begins
Once you have the numbers down, figure out what you can do to improve your financial situation to achieve your goals. If you have high interest credit card debts, CLEAR THAT OFF FIRST! This should be your Number One priority! Find out how much you have to pay off monthly so that you can be clear of it within 12 months (longest).
How long and how much you can pay off your credit card debts depends on how much of your income is left after your monthly expenses. Some trimming of expenses will be required and is highly recommended if you want to have a sounder financial position. You don’t need those expensive lattes everyday for instance. Take toll-less route to work or carpool maybe? You’d be surprised at how many co-workers would welcome such idea. Times are hard after all.
Make a weekly and monthly budget plan. Start by putting aside from your monthly income, the amount needed for fixed expenses. This includes utility bills, insurance, credit card debts and other loan installments. Then take out also the amount you plan to save and maybe some for your emergency fund. The balance is how much you can spend for the entire month. Divide the amount into 4 and you get your weekly allowance.
5. Start tracking your expenses
Develop a strong weekly and month plan and track your expenses daily! This requires discipline. But with easy to use budget apps available on your smartphone, this task isn’t as daunting as it sounds. Take only the allocated amount needed for the day, with some extra in case of emergency and spend wisely. What I like doing, is to put whatever I have left in my purse at the end of the day into a tin box in my desk drawer. I get such thrill to find all that extra money in that box at the end of every month. Time to hit the cinema!
Making a budget is the most important thing you can do, because then you will be able to understand where your money is going and where you can afford to make cuts.” says Meg Favreau, senior editor, Wisebread.com. But it’s not just about making cuts. Having a budget will reveal how much excess you have thus helping you develop a better plan to achieve your goal(s). Apart from this, it also gives you a better control over your expenditure and spending habits.
The key is to have a solid plan and sticking to it. However this does not mean that you can not adjust the figures when it becomes necessary to do so. But always keep your end goals clear in your mind and never compromise on them. Be diligent, persistent and disciplined. Every little effort counts!