Budgeting is an important part of our life. Creating a budget and saving money are usually neglected because they both require time, but these are things we need to think about and spend time on planning and implementing in our lives.
As they say, if you fail to plan, you plan to fail. This saying is very much applicable in our financial life.
Without a budget, we tend to spend on unnecessary things and not be able to save for our future and that includes saving for our retirement age. This is what we should all work towards.
What is budgeting?
Budgeting is financial planning that helps us to spend our money wisely. It does not only help us to save but also allows us to plan for our future. By planning, we can see what we can do with our money and how to manage it.
Why is budgeting important?
There are several reasons why we need to budget. Here are some of them:
- Budgeting helps us in planning ahead.
- Budgeting can help us save money.
- Budgeting helps us to see where our money is being spent. It is good to know how much we spend on each item and how much we have left for the rest of the month. If there is any leftover money at the end of the month, it will be easy to know what to do with it.
- Budgeting also helps us spend our money wisely and avoid unnecessary expenses and we can be able to save the amount instead. For example, if you want to buy a new TV set but don’t have enough money, you can wait until you have enough in your savings account before purchasing a new one.
How to Create a Budget?
There are many ways of creating a budget, but there are five steps that will help you create one successfully:
1. Set Financial Goals.
Think about your financial goals. List them down, starting with your short-term goals, then your long-term financial goals.
Remember to set realistic goals as you go through this.
Giving value to your goals will help you realize the need for you to really save money from your earnings.
2. Know your income.
To be able to budget effectively, you have to know how much you are earning monthly. So list all your income sources and determine how much money is coming in.
Start by writing down your income per month from your salary and other income sources such as commission, side hustle, rental, etc.
Focus on the net income to be more realistic, so exclude Taxes, SSS, PhilHealth and other mandatory deductions so you can have a clear understanding of how much money you are getting.
3. List down your Expenses.
After writing down your income, write down all your expenses. Think of the usual things you pay or buy monthly like food, fuel, groceries, entertainment and everything else you spend money on.
List them down with the corresponding amount.
4. Compute your Income and Expenses
Deduct your expenses from your monthly income. If your income is higher than your expenses then you can start planning on how much you can save for each of your goals.
If your total expense is higher than your monthly income, you must review your expenses and see where you can make some adjustments. Find unnecessary expenses and cut them off.
5. Continue to Track your Expenses.
List down your expenses every day and review them monthly. This is something you have to patiently do if you really want to keep track of your finances.
This is important for you to see if you are spending on unnecessary things. If you’re able to track your expenses properly, you can adjust and save more to reach your financial goals.
The important thing to remember when creating a budget is not to cut down on everything but rather to cut down on the unnecessary expenses so that there will be enough left for savings and investments.
Continue tracking your monthly expenses, and always go back to your monthly budget and see if you went over it or if there are unnecessary purchases. Do your best to avoid these unnecessary purchases
Tools for Budgeting
There are many tools that can help you create a budget. Here are some of them:
1. Pen and paper
Let’s start with the basics, which are pens and papers. Pen and paper are what most people use when creating a budget.
You can get a notebook that will only be used for budgeting and for listing down your expenses.
Inside your notebook, create columns for each expense item. For example, you can create a column for your salary, rental payments, utilities, transportation, food, etc.
All you have to do is list down your expenses in each column as they happen during the month.
You can do the recording every day if you tend to forget things, just set a time of the day for you to recall and record the items you bought for the day.
2. Spreadsheets
Spreadsheets are a very convenient way to track your expenses as they can be updated and edited easily.
They also come in handy when you need to calculate complex calculations, like an amortization table for example.
There are many free online spreadsheets that you can use and customize to your liking. Spreadsheets can also be used on your computer or laptop.
Many people who have access to a computer or laptop prefer spreadsheets over pen and paper because it is more convenient and easier to use. It is easier to keep track of all your expenses this way too.
You can use Microsoft Excel or Google Sheets for this. I personally prefer Google Sheets, but whatever is accessible to you, you can use it to start tracking your expenses.
If you choose to use a spreadsheet, it is very important to keep track of all the changes you make to it. This way, the next time you want to update or edit the spreadsheet, you will know exactly what has been changed and when.
Some people like to use a color-coding system in their spreadsheets so that they can easily distinguish between different types of expenses.
Some helpful features come with spreadsheets, such as data validation. This feature helps ensure your data is filled correctly. Suppose your income was fifty thousand pesos (Php50,00000) for this month, and you are trying to enter an expense more than that amount. The data validation feature will inform you of the error.
It is also helpful in keeping track of your expenses because if there are any errors in your spreadsheet, it can tell you what needs editing and updating.
3. Online Tools
There are online tools that can help you manage your finances better and help you create a budget more quickly than with pen and paper or spreadsheet software.
Some examples are Mint, Mvelopes and YNAB. They allow you to connect your bank accounts so that they auto-track your transactions and update them on their platform automatically. They also have many great features such as goal setting, tracking cash flow, bill reminders etc.
Conclusion
Budgeting is essential for you to achieve your financial goals.
It may sound like a lot of work, but you just have to schedule a time to focus on doing it. It could be 10 minutes every day or 30 minutes once a month. You just really have to schedule it.
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Learn more about saving money, ways of earning money and basics of investing here at Peso Wise Mom.