It happens to all of us. At the end of the month, we check our empty bank accounts and think, ‘Where did the money go?’ We try to stick to a budget but it’s the small and unplanned expenses that add up and take us by surprise. The frappuccinos we grab on our way to work every morning, the bar tabs and dry cleaning bills, even the takeout dinners when we come home too tired to cook.
It’s okay to spend on things we enjoy and need, but we should at least be conscious of where our money goes—after all, we worked hard for every cent! Here are some tips on how to make a realistic budget — and stick to it.
1. Keep a money diary.
For one month, carry a small notebook and tally every expense you make. You may be surprised how much you spend on the office vendo machine, or the cab fares to and from work.
2. Take inventory.
The money diary helps you catch the small expenses. However, you need to get a big picture, too. Make a realistic inventory of your financial obligations: monthly (rent, credit card payments, bills) and semi-annual (car maintenance, your kids’ tuition, health club memberships).
Then, plug in the ‘incidental costs’ that you may have spotted while keeping your moey diary. For example, aside from your kids’ tuition, you also pay for books, soccer uniforms, weekly allowance. You can also anticipate other expenses you may have missed by looking at each area of your life and asking yourself, ‘What do I use?’ or ‘What do I need to make this work?’
3. Prioritize expenses.
Look at your list of expenses. How many of these are crucial? Of course, bills and credit card debts must be paid—and if you don’t pay rent or mortgage, you’ll be out on the street! Highlight these expenses and remember to prioritize these before the rest.
Then, how many of these are not crucial, but significantly affect your quality of life? For example, you may not ‘need’ to have a gym membership, but you feel that it’s a good investment in your health and well being. Mark these, too, and make a mental note of how you may need to supplement your income or curb on other expenses in order to afford them.
Finally, look at the rest with a critical eye. How many are neither crucial nor significant, but are due to lack of planning? For example, instead of ordering takeout every night, you can stock your fridge with ingredients for a quick meal (like a salad or a healthy sandwich). Or, you can cook on weekends and then freeze in single servings, so you just have to defrost on the rest of the week.
4. Pay yourself first.
Another thing you need to remember when making your expenses is that you should allot 10% of your monthly salary for savings. Consider this as a way of paying yourself for your hard work—you’re putting together a nest egg so you can retire comfortably, or have a financial safety net in case you get sick or lose your job.
5. Use the envelope system.
When you get your salary, pay bills immediately, and then withdraw the money for incidental expenses and insert into labeled envelopes. For example, if you have allotted $200 for meals and supermarket expenses, then you can only ‘withdraw’ from that particular envelope. For security purposes, keep the envelopes in a locked money box.
This system teaches discipline and forces you to really stick to the budget. Avoid using your credit card or ATM.
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