The Easiest Budgeting Plan You’ll Ever Need And Get You On Track On Your Savings
Budgeting your finances is a good way to monitor where your money goes. It is important because without a budget we tend to overspend on something that is not yet the necessary item/s to buy. Also, with a budget, you can now allocate portions of your income to save and invest it for your future.
Personally, I have tried a lot of budgeting tips like the envelop method, the jar method and even downloaded budgeting apps on my phone but I can’t just get it done consistently.
What I did was, follow the formula below:
Income – Savings = Expenses (What i Use) ;
…previously, I use this formula:
Income – Expenses = Savings (I Don’t Use NOW) ;
This is not wrong either however if I will be using that my savings would be unpredictable. It is important for me that my savings predictable. Predicable means I can project my savings or investment growth on a certain period to achieve my financial goals.
How to Use the Formula for the First time?
If you are using it for the first time, set the desired amount to Saving first. Set an amount that you are satisfied with. The most common advice on setting a savings amount is 20% of your income. At the least, it should not go below 10% of your income.
After settling your desired Savings, do the expenses. List all your expenses every month and add them up and plug them in the formula.
Mr. Juan with an income of Php30,000 per month and want to save 20% of his income while the remaining 80% will be divided on his expenses.
Desire Savings = 6,000
Total Expendable = 24,000
Listing out his expenses:
House Loan / Mortgage = 6000
Car Loan = 14,000
Household Utilities = 1000
Insurances (Life/House/Car)= 3,000
Cost of Living Allowance = 5,000
TOTAL EXPENSES = 29,000
In this scenario, the total expenses are exceeding the total expendable amount. If Mr. Juan still wants to save his desire amount which is 6,000 pesos, he will need to trim down on his expenses or give up some of his desired save amount.
This example illustrates a simple cashflow on your finances. It is really important to know if you are targeting a certain financial goal. In the end, it is totally up to you to decide how much you are willing to spend or to save. What I recommend if you want to be consistent on the saving part, do it automatically. Create an account where it auto deducts from your income after you receive it. I truly believe that money you can’t see, you don’t spend. We tend to optimize our expenses if we only have enough money. You’ll be amazed by how much you can save in a year if you will do that.
How do you do your budget? Share your thoughts.