Take Control Of Finances: The Guide To Budgeting (Part 1)

Do you ever feel like your money disappears as soon as it hits your bank account?  You are not alone, because I definitely feel the same way.  In a world of constant advertising and subscription services, it is easy to let spending run on autopilot, pushing our long-term dreams further and further away.  However what if you could turn the situation around?  What if you could tell your money exactly where to go, ensuring that every dollar is working towards the life you truly want?  The secret lies in two powerful steps: creating a realistic budget and strategically trimming your lifestyle expenses.

I know many people will take the word "budgeting" with a negative connotation, but it is important to understand that budgeting is not about deprivation.  It is, in the longer term, about empowerment.  It is about aligning your daily habits with your biggest goals.

The Foundation - How to Create a Budget That Actually Works

A budget is not a financial constrain, it is a spending plan.  It is your roadmap to financial success.  Ditch the idea that budgets are restrictive because they are, in fact, the key to financial freedom.

1)     Choose Your Budgeting Method

Not all budgets are created equal. Find one that suits your personality and lifestyle.

a)     The 50/30/20 Rule: A simple, high-level framework.

50% of your take-home pay goes to Needs (rent, groceries, utilities, minimum debt payments).  30% goes to Wants (dining out, hobbies, shopping, subscriptions).  20% goes to Savings & Debt Repayment (emergency fund, retirement, extra payments on loans).  This method is best for beginners who need a simple, flexible starting point.

b)     Zero-Based Budget (ZBB): Every single dollar has a job.

Your income minus your expenses = SGD 0.  You "spend" every dollar you earn on paper, assigning it to a category like rent, groceries, savings, investments or fun money before the month begins.  This method is best for detail-oriented people who want maximum control and want to eliminate wasteful spending.

c)     The Envelope System: A cash-based, tactile method.

You allocate cash to labeled envelopes for different spending categories (e.g. "Groceries", "Entertainment").  When the envelope is empty, you stop spending in that category for the month.  This method is best for those who struggle with overspending on debit/ credit cards (digital version of this exist with separate bank accounts).

2)     Track Your Income and Expenses

You cannot plan where you are going if you do not know where you are.

a)     Gather Data: Look at the last 2-3 months of bank and credit card statements to review and analyse spending patterns.

b)     Categorize Everything: Be honest with yourself, was that coffee a "Need" or a "Want"?  This clarity is crucial.

c)     Use Tools: You can use a simple spreadsheet, a notebook, or a budgeting app to automate the tracking.  Personally I just use a simple excel spreadsheet to track everything manually.  It make sound tedious to others but I enjoy churning the numbers.

3)     Set Your Goals and Adjust

This is the "why" behind your budget.

a)     Short-Term Goals (0 to 2 years): Saving up to plan for a upcoming vacation, change a new laptop, or simply just saving up for an emergency fund.

b)     Mid-Term Goals (5 to 10 years): Saving up for down-payment on a house, a car, or an education fund for your children.

c)     Long-Term Goals (10+ years): Saving up for investment, financial independence or retirement.

d)     Be Specific: Instead of "save more", aim for "save SGD 5,000 for a down-payment in 18 months".

Now, look at your tracked spending.  Does it align with your personal goals?  If not, it is time to make adjustments.  Most importantly, ensure that your expenses do not exceed your income, else it may be the start of a vicious cycle into negative cashflow or debt.  Manage and budget your expenses carefully and your future self will thank you.  In the next post, we can explore how to effectively trim your unnecessary expenses so that your overall finances can improve by leaps and bounds!  Barista FIRE, here I come...!