Key strategies on how to budget money simply
Need to find ways to simplify your budget? Start by sorting your spending based on “needs” versus “wants.” Then, divide how your money should be spent into four simple categories: food and drinks, housing and utilities, transportation, and leisure and entertainment. Begin with these basic categories. Add more if your circumstances call for it.
Budgeting can spell the difference between living comfortably and surviving on instant noodles. Following a budget protects you from having to go to lenders that prey on people who are short on cash. It makes you proactive. Instead of living on paycheck-to-paycheck, budgeting allows you to manage your income (the money that flows in) and expenses (the money that flows out) wisely so you never end up in the negative zone.
Budgeting is also useful if you have financial goals you want to work towards, such as a house or car, your child’s education, or your future retirement.
With proper budgeting habits, you get to track your spending and see how much of your income is left over each month and can be carried over to the next to be used either for your necessities or to be saved up for future purposes such as building an emergency fund.
How to budget wisely
Many people find budgeting disheartening because they find the multiple rows, columns, and numbers complicated and confusing. But budgeting doesn’t have to be difficult. We’re here to help simplify your budget. All you have to do is to figure out how much money you need to allocate for things you need to pay versus expenses that are unnecessary.
Where to begin
1. Determine your income
Start by figuring out how much you make in a month. There are multiple sources of income you can consider besides your employment. Do you freelance or do part-time work? Conduct online selling or have an online business? Receive a pension or benefits from the government? All of these should be factored in under your income.
2. Tally your expenses
Track how much you spend in a month. You can either write this down using pen or paper, track it digitally through a spreadsheet, or download an app to help you monitor your spending.
If you can, go through all your receipts from the past three months. This includes utility bills, bank statements, online bank transactions, credit card bills, loan statements, and physical receipts. Tabulate them to see how much you spend each month then compare this with what you’ve been tracking.
If you find you have any existing debts, you need to start by managing your debt first.
3. Create a list of expenses
The final thing you have to do is come up with a list of expenses. At this point, it doesn’t need to be organized nor trimmed down. Just write whatever comes to mind then edit it later.
4. Simplify your budget
Now that you have a list of things to spend on, you can then simplify your budget list, edit it, and group the items into four main categories.
Food and drinks- This falls under the needs category. You should set money aside for food. This includes groceries and eating out. If you can, go for home-cooked meals versus expensive restaurants. Try to limit dinner dates to special occasions and choose a healthy packed lunch over fast food.
Housing and utilities- Another must. You need to pay rent, electricity, water, internet, and mobile services. These are necessary, so remember to put these in your budget. Include monthly association dues if you live in a condominium and factor in parking, if it applies. Track these expenses, add up how much these cost on the average, and set that as your budget.
Transportation- This category covers the money you need to get to and from work. Whether you're commuting or getting there in your own vehicle, set aside a bit more for when you want to go out on weekends. If you want to save on this category, set just enough for a daily commute to discourage you from making unnecessary trips. You can also add your average monthly gas money here. For some, you may want to allocate money to maintain your car as this technically falls under the wear-and-tear caused by transportation.
Leisure and entertainment- There’s nothing wrong with indulging so long as it’s in moderation. A budget helps you achieve that and keep you in check. This category covers anything that adds to your quality of life but isn’t “needed,” as we defined it. These are things like hobbies, movie tickets, online subscriptions, health and beauty treatments, etc. These expenses should be the first to go if money is tight. Remember, “needs before wants.”
5. Personalize your budget
These are the four expense categories when you start your budgeting discipline. These can change depending on your circumstances. For example, if you’re living with your family and you don’t need to share in the household expenses, you can set aside more for categories like savings and investments.
On the other hand, if you have debt, make sure to budget for repayments to protect yourself from mounting interest and penalties from not paying them on time, and in full.
6. Review and tweak
An important aspect of budgeting is reviewing it after a certain period of time. Circumstances change and priorities shift so what worked a couple of months ago may not work for you anymore. Try to see after three months if your budget still works for you. If you use a program or a spreadsheet to budget your money, it’ll be easy for you to move stuff around. Remember, the goal of a budget is to be able to maximize your money and work towards your financial goals, not be at the mercy of your money. So, create a budget that works for your needs and not the other way around.
To help you manage your money, you can learn more about Metrobank Online or the Metrobank Mobile App.
See Related Article: Understanding Good and Bad Debt
This article is part of a collection of stories and practical financial tips that are published with the goal to help people learn from the experiences of others, and to pick out lessons on personal finance and sound money habits beyond the pandemic.
