If you’re like me, money comes in in a finite amount every month. So, to ensure survival until the next pay check, managing its out flow is important.
The hardest thing for me to do was figure out where it all went at the end of the month. It was strange. In my mind, I had it all figured out. I knew exactly how much came in at the beginning of the month, what I spent throughout, and what I should have left at the end.
Somehow, it never worked, I would always find myself really, really, really, short of cash.
Have you ever found yourself in the same situation? Well, you’re not alone! (LOL)
It’s probably safe to say that we all know the importance of money management. After all, a lot of decisions that we make revolves around where we spend our money. Since for most of us, money is finite, I can’t emphasise enough how important it is for us to keep a tab of how it’s managed.
For the longest time, I had this idea that money management was for people who had money. Since I was always broke, I figured, what’s the point in managing something I never had.
Then, it struck me.
If I can’t learn how to deal with my money when I don’t have much, how can I expect to suddenly be good at it when I have a lot (here’s still hoping!)?
So, to get a better idea of what was happening in my savings account, I set out to create a monthly budget. With a budget, I wouldn’t need to wonder where my money went. I’d now have something real I can track my spending with.
What is a budget?
A budget is simply a document with three main components:
1. How much money I expect to come in (inflow)
This part is all about listing down your monthly income. For many of us, we know exactly how much money we’ll be receiving each month. So getting this part down should be a cinch.
2. How much I expect to spend (outflow)
This part of the budget will require a bit more thought. The idea is to list down with as much detail as possible what you expect to be spending on. The usual categories of expenses include; loan instalments, food, travel expenses, leisure, clothes, bills, and rent. Don’t forget the one off expenses like insurance or road tax.
3. How much I expect to have at the end (balance)
Once you have parts 1 and 2 sorted, it’s easy to figure out your expected balance at month end. Simply add up all your expected expenses and subtract the amount from your income.
And hey, presto! With these three components in mind, you too can have a budget!
Having a budget alone isn’t going to be enough. Another important aspect is to measure your actual expenses against your budget. By doing this, you can figure out if anything has been over or under-estimated. You can then make adjustments to your budget so that it better reflects your actual spending.
Why is a budget so important?
When we wake up every day, we usually have a rough idea of what we’re going to do throughout the day. At work, there is (usually) a standard procedure we follow to ensure tasks assigned gets completed according to their objectives. To put it simply, there is always a plan involved in everything that we do. Even YOLO! things that you randomly decide to do (I’m not kidding).
Plans can be in a mental note, or on a document/stone tablet/scroll that you have that you can keep coming back to. Personally, I think it’s important to keep plans in a ‘real’ form. Real here means it’s not up in my head, not up in the clouds. But something I can see in written forms. To me, psychologically, a written out plan has a lot more seriousness than a plan that’s in my head.
I don’t know if you can relate, but for the longest time, facing my financial matters was the scariest thing to do. I thought if I could sweep all the issues under the rug, it’d disappear. Turns out, after a while, I’d have built a nice little molehill of issues under my imaginary rug.
I realised that the first step to solving a problem is to acknowledge the problem. Having a budget doesn’t guarantee success. But a budget helps you have a better view of your cash flow. Keeping details of how you spend your money helps you find areas for improvement. Who knows? Maybe before keeping a budget, you didn’t realise how much you actually spent petrol. Since keeping a budget, you realise that you could perhaps have saved more by
Uber-ing Grab-ing to work instead.
This is of course an example. The point is, it’s best to be upfront to yourself. Start with a budget, and measure yourself against what you’ve budgeted. The key to better money management is this, you have to know what you get, what you spend on, and what you’ll have left. Otherwise, if this isn’t figured out, jumping into other money management products could spell trouble.
So, who needs a budget?