For every financial advice article that you read, the only recurring piece of advice that always recommend is you need to set up a budget. Furthermore, by having a strategic plan establish for your budget. You will have paved a path where your money will go to and how to utilise your money responsibly. With this simple budget 101 advice, you will be able to manage your finance with ease.
The Three Principles of Budgeting
In the most basic concepts, your money can be viewed from three different perspectives:
- Money for Expenses
- Money for Saving
- Money for Everything Else
This is the three viewpoints that you should track and manage with the money that you have to earn with your effort.
1. Money for Expenses
As your recurring spending basis, you need to sort out your expenses to prevent yourself from overspending. Categorise your expenses by Monthly Expenses and Irregular Expenses.
Monthly Expenses are billed on a monthly basis. It is the main form of expenses. They are referred to as debts and loans. Both expenses should be treated as up paying up your bills or online services. As you treat your expenses by paying off your debts, you will be able to pay off faster than you could expect. Examples of monthly expenses are:
- Rent or Mortgage
- Car Payment
- Internet and TV
- Cell Phone
- Debts and Loans
- Spotify/Apple Music
Irregular expenses are billed in non-recurring intervals. It could be in every three months, annual basis, or once every two years. So, imagine if you have forgotten to renew your car or passport license and you have to fork out a few hundred ringgits to sort out the fees. It’s best to sort out every payment ahead so that you will never get caught off guard especially if you are having financial issues at the same time. Based on the amount and interval, you can sort out a small percentage from your salary. So it won’t make a huge impact on your monthly expenses.
Examples of irregular expenses are:
- Car Registration
- New Tires
- Oil Changes
Calculate both monthly and irregular expenses as a single value together with your paycheck. This would represent the total amount you have to sort out each time you were paid to cover all your bills and loans.
2. Money for Saving
This is where you tuck all your hard earned money in a savings account. This is your reserve money in case of emergency or to invest towards your desired life goals. Moreover, setting up an emergency fund would help as well, if you haven’t now may be the time now to start saving.
You can opt to come out with several personal savings for each of your life goals. You can sort them out based on the percentage or amount of money as long as you can calculate the per-paycheck value.
Examples of saving goals are:
- Emergency Fund
- Personal Fund
Together with your current expenses, you can calculate together all your current saving goals into every paycheck you earn. The value will represent the amount you are required to save each time you receive your salary to achieve your goals.
3. Money for Everything Else
Also referred as your leftover money from your paycheck or your Flex money. Like the envelope system which it has no limitations. You can utilise it for your entertainment, fancy dinner, buying groceries or purchases from your wishing list. Instead of setting up a fixed budget, you can make do with a flex budget instead. Furthermore, it would help you to gauge your expenditures for this category. Once you are able to adapt to your flex expenditures, it would be easier for you to utilise your money.
For instance, you will only get your salary next week Saturday. You only have RM200.00 left for your flex money. To avoid overspending, you will need to manage your money starting today till your paycheck comes in.
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