Your ultimate guide to manage, plan, save more, and invest with your monthly budget – By Chua Boon How
Have you always been in this situation where you spend most of your paycheck as soon as you receive it?
Is it a tragedy to look at your bank account at the end of every month to see your residual income reduced to less than two figures? Sometimes you even resort to borrowing from friends or family when you’re short on cash.
Well, you’re not the only one. These findings will surprise you.
According to a survey done by The Star Online, 94 percent of Malaysians are unable to survive for more than six months if they lost their main sources of income, 18 percent of them are up to 3 months.
Even if you belong to the 6 percent, are you thinking ahead about your retirement plan? Credit Counselling and Debt Management Agency (AKPK) recently reported that more than 50 percent of Malaysians may not be ready for financially ready for retirement.
Does this mean that we all doomed?
Fret not. On behalf of all broke yet hopeful souls, I have done adequate research on how to effectively manage your living expenses monthly. So once you read on and execute the instructions accordingly, expect to see amazing results the following month.
Record What You Spend At All Times
This might sound like a tedious task, however, it would be helpful to collect the receipts and jot down your spending at the end of the day or week on a spreadsheet.
In this age of technology, tracking expenses made easy with the advent of mobile apps and software programs. The purpose of doing so is to learn about your spending habits in order to make decision on how to spend wisely.
Get a sense of your monthly cash flows through the account statements of your bank accounts and credit cards. Not only you would be aware of your cash balances, you can monitor if fraudulent charges were incurred and can be dealt with immediately.
Categorise Your Expenses
It is a good idea to group your expenses to figure out which category have the highest expenditures. These groupings typically consist of fixed expenses, variable expenses, and periodic expenses.
- Fixed expenses are the least likely to change from month to month. It can be your mortgage payment, rent, car loan, debt payments, and insurance.
- Variable expenses consist of grocery bills, utilities, or entertainment. They occur on a regular basis but the amount varies due to personal taste.
- Periodic expenses do not occur regularly. Quarterly taxes, travels, clothing, and impulse buys are some of the examples.
Plan Your Personal Budget
Record down your expenses can give you a sense of your spending habits, you’d get an idea of which groupings have the lowest and highest expenditures. So, the next step is to incorporate them into your budget planning.
Here is where the work really starts. Stick to your spending limits. This is the essential part of staying on a budget. It is fine that you may find yourself having an unrealistic budget, use the numbers to make readjustments and reviews for the next month.
You might even realize that you can cut cost down in some areas and make some changes in your spending impulses such as year-end sales or vacations. It is important to remember that debt payments and savings should be your priority before living the high life.
Follow the 50/30/20 Rule
This budgeting concept coined by Elizabeth Warren and Amelia Warren Tyagi is a proportional guideline to keep your spending plan in line with your savings goals.
Let’s start with the necessities. Allocate 50 percent of your after-tax income on your needs. They might include housing, utilities, groceries, car payment, and insurance.
How do you exactly differentiate between your “needs” and “wants”? A key question to keep in mind would be: Would it significantly impact my quality of life if I forgo these things such as cable TV, entertainment, eating out, and shopping?
If not, they belong to the “wants” bucket. Spending on your wants should not exceed 30 percent of your income. These are the items you could live without when the times are tough.
The last 20 percent goes toward savings goals and debt repayment. The logical step is to clear off your debt first. The quicker you get out of loan obligations, the higher your savings increase. Depending on how disciplined you are, pursuing your savings goals can be achieved faster by robbing from your “wants” category.
Your savings goals include emergency fund, mortgage payment, and retirement plan. Passive income investment is another great option for the 20 percent you put aside to let the money work for you. This is the way for you to accelerate wealth creation and achieve financial goals.
Take Action, Get Started!
Now that you have all of the information to successfully track your living expenses and planning a budget, however, it is only imperative that you get started! Tracking your living expenses do not start when you put in place the perfect system and numbers, so dive right in and improve along the way!