Read the Tagalog Version of this article: Budget 101
I have noticed that majority of my website’s visitors are Filipinos. 54% of my web traffic is coming from my countrymen so I felt compelled to make articles in Tagalog (or better to say “Tag-Lish”) in order to become more useful, easier to understand, and may further increase our knowledge on the proper use of our money and other things related to financial literacy. Now I encountered another task and responsibility, because although I made these articles in Tagalog, some of my readers demand and ask if I can make separate English versions for each article so they can share it with their friends (maybe foreigners, I don’t know) as well. So in order to please those Pinoys who are more inclined in English language, I especially made these articles for you.
The first topic that we are going to talk about is concerned about Budgeting. Many of us earn money but always seem short and apparently NO SAVINGS. Sometimes we spent for our needs, for our wants and later be surprised that you now have an empty pocket. And worst, you have no other option but to borrow from friends and relatives for any “emergencies”. Such experience probably happens to you. Why?… one reason can be due to an improper budgeting of your hard earned money. I personally, have experienced the same. So you are not alone and we should not be ashamed to say that once in our lives we fail in budgeting.
Wait, first let us ask, what is the meaning of the word BUDGET? One good definition of the budget are those John Maxwell said: “A BUDGET is telling your money where to go instead of wondering where it went.”. Budgeting is the allocation of money where you want it to go thus you would not ever wonder where it went and why you spent the money.
How To Budget Your Money?
Many of us do not know how to do the proper budgeting. Many just simply write and record their Income and Expenses, and think that it’s done.
In fact, there is a proper process of budgeting. Make sure you do these three processes below when you make a budget plan:
1.) List the budget in 3 parts: Income, Expense and Savings
2.) Monitor the budget versus your actual spending
3.) Refine your budget
3 Part of the budget you should list:
Income. Savings. Expense.
As I have said, many of us that makes budget simply lists their Income and Expenses. They usually forgot the one which is most important on the list … the Savings.
And if they do, they include the savings as the later part. What was left will be saved. As if “savings” is something optional.
Income – Savings = Expense
They tend to first pay out the bills, other payables, etc. than paying himself first. But it should be,
Income – Savings = Expenses
Set aside before you pay others. Before you pay others, make sure you pay yourself first.
What was left from your Income minus Savings, that’s what you should use to pay your all your bills and expenses.
The question now is, ideally, how much should you save? If you can set aside 20% of your income, that is better. But if you’re earning is not that much, you can make some adjustment and start by setting 10% of your monthly income aside and gradually increase your savings. So if you are earning Php 20,000.00 for example, you will immediately set aside Php 2,000.00 as your 10% savings. I mean, you make sure you have set aside Php 1,000 pesos every pay day if you are being paid bimonthly.
You should not forget that “Savings” are divided into 3: Emergency Fund , Short Term Goals and Long Term Goals. We will discuss this in more detail in another article. But right now, the important thing to know, we should know how to properly breakdown our revenues into 3 components.
One of the effective and convenient way to list the three is by using a budgeting worksheets such as Microsoft Excel. By listing them, you can have an idea of where you wanted your money to go to.
To populate your budget spreadsheet, you need to record all your expenses within 2 weeks. To do this, you may write your daily expenses in a notebook or if you have a smart phone you can also try some of the available “Apps” for logging your expenses. (I use those Android Expense Manager app that can be downloaded for free on Google Play or Android Market. It’s like a budget calculator or a budget planner that you will surely love.)
After you record all your daily expenses, write all the data in your budget spreadsheet so you will know how much is your normal day-to-day cash out.
|January 1-15,2014 (Salary)||10,000||Emergency Fund||700||House Rent||4,000|
|Photo (Sideline)||2,000||Long Term Goal||500||Food/Groceries||3,000|
Through the budget spreadsheet, you’ll instantly know where you should save and when you should have money for those “fixed” dates of your payables (and you may also make a more detail list than this if you want to check how you spent those consolidated entries like Php 3,000 worth of groceries). You may need to do a lot of adjustments in the beginning, for example you’re renting a place for Php 4,000.00 to be pay every fifteenth of the month, then you should set the amount aside before the said date. Thus, if you need to reduce the “extra rice” to fit to your budget, do it. You may find yourself to skip some of the TV show to reduce your electric bill.
I will present various forms of savings in my next articles.
Monitoring your budget versus your expenses
Now that you’ve written all you need, you need to monitor your intended budget for two weeks. Do not deceive yourself; you have to make your budget a realistic one. Analyse how you spend and make the necessary corrections as early as you can. Adjust your budget but remember that the amount you allot should not be too far to your actual spending.
Refining your budget
Alas! You’re now able to save 10% of profit per month. How about making it 15% ? Or making it 20% perhaps? If you can still have some luxuries and self-pampering, consider refining your budget and you will be surprise to know that you still can. In fact, there are people who are able to save as much as 50% of their revenues. Challenge yourself to do it. The sooner you can build your Emergency Fund, the better and for you to proceed to invest in the short term and long term goals(we will discuss this in another article). Save money and save while you can.
Always remember, the harder you work to earn a certain amount, the hardest for it to save, invest and multiply.
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