A budget is simply a plan for spending your money (now, does that get you excited?). Yes, most of us love to spend but very few are able to control their spending. A budget is a way to balance the money you have with the money you spend. You create a plan by making choices. You decide what you will spend money on, how much money you will spend and how much money you will save.
Your plan is based on your income and expenses. Income is money coming into your pockets. Expenses are things that take money out of your pockets. Since every person’s income and expenses are different, your plan needs to fit your situation (or your pockets!). Your budget is based on your Goals, Needs and Wants.
Let's take a look at some examples:
GOALS | NEEDS | WANTS |
Own a Car Own a Home Get Married Set up own business Provide good education to children Retire comfortably Contribute to charity | Food Shelter Clothing Quality time with family Car/ Motorcycle Mobile phone Computer | Fine dining Resort-like bungalow Expensive branded clothes Expensive vacations Luxury car Latest full-featured phone Most advanced computer Etc., etc., etc…… |
As you can see from the above, sometimes it’s hard to differentiate between Needs and Wants. As time evolves, our basic needs may extend to more than just food, shelter and clothing. A salesperson may work more effectively with a car (unless our public transportation system is super-efficient!) In today’s IT age, mobile phones are practically indispensable (even school children thinks so!), so are computers. However, there are cars that costs RM30,000+ while some, RM300,000+; mobile phones of RM100+ and some RM1,000+ and computers that costs RM1,000+ while some can go as high as RM10,000+!
We only Need a few things but our Wants are endless! Is it hard to differentiate now???
Why Should I Have One?
Anyone who has income and expenses needs a budget. Having a plan helps you use your money to reach your goals. You can learn and practice the skills that are needed to make a budget. This money plan will help you to be in control of your money. You can avoid financial trouble and reach your goals easier.
How Do I Start a Budget?
To make a money plan, list your Income and your Fixed Expenses, which are expenses that do not change from month to month, like rent, home and car installments or insurance premiums. Other expenses are Variable, i.e. they change from month to month, like utility bills, clothing or entertainment.
Next, you’ll need to keep track of how you are now spending your money. You can do this by writing down what you buy and how much you spend. This will take some time and effort but it is worthwhile because it will help you see where your money goes. Don’t be too surprised by what you’d learn about yourselves and your money!
For the next 30 days, every time you spend, write down in your planner (use the Excel spreadsheet, if you are tech-savvy) how much you spent and where you spent it. When you pay a bill, pump petrol, go to a movie, give money at church/ contribute zakat or even buying your favourite nasi lemak from the makcik around the corner, record everything down.
At the end of the month, use a calculator to total each column at the bottom of the chart to see how much money you spent in each area. Then, total all the columns to see how much money you spend in an average month. Get your children involved as this will not only sharpen their math skills but also expose them to the concept of budgeting (but a word of caution: they’ll then know when’s the best time to ask for their new toy!)
How Do I Decide Where to Spend My Money?
By reviewing your completed chart/ spreadsheet, you can see where your money goes. It is often helpful to discuss your chart with a counselor or someone you know who manages their money well.
A big part of your money is used for basic necessities like food, housing and clothing. These are needs and you will always be spending money on them in order to live but you can choose how much to spend. Other spending might include buying new clothes, new dishes or new toys for your children. These are wants. While you might enjoy spending money in these ways, you can live without them.
The following questions may help you decide what to do:
· Which spending can’t be cut?
· What is the minimum I need to live?
· Which spending is Needs and which is Wants?
· What would happen if I delayed some of my spending?
· Can I buy cheaper substitutes?
Now that you have studied your chart and discussed the questions above, you are ready to make your personal budget. Write down how much money you need for each kind of expense for one month. For example: RM300 for food, RM100 for transportation, RM50 for savings and so on.
Try to set some short-term goals and long-term goals. Some short-term goals might be: limit money for food to RM10 per day, take the bus/ LRT instead or driving to work and check (your neighbour’s) newspaper for free family entertainment. Some long-term goals might be: save RM1,000 for a new refrigerator (energy-saving & environmentally-friendly models would be ideal!), get out of debt or perhaps move to a different neighbourhood (or as some might say, balik kampung!)
How Do I Stick to My Budget?
This is the hardest part, mind you! It will take practice and self-discipline to follow your budget. You are the only one who can maintain your plan. Here are some suggestions that can help you stick to your budget:
· Pay necessary bills first. If possible, try to stretch your bills out evenly over the month so they are not all due on the same day.
· Save some money every month, no matter how small. You just want to form that habit.
· Make a list before you go shopping. When you shop, remember the difference between needs and wants.
· Plan ahead and buy items on sale. Check out discount stores and garage sales. Share reusable items with family and friends.
· Stay away from stores or places where you waste money!
· Learn ways from family and friends to save money and follow a plan.
· Keep a record of where you spend money and how much money is spent. Make it simple and easy to do. (Tip: the “555 pocket-book” may come in handy!)
· Compare this record to your written money plan so you can see if you are following your spending decisions.
When Should I Change My Budget?
Don’t panic or feel disappointed if you are unable to follow your budget completely. It takes time and practice to change any behaviour, especially spending habits! You may need to change your budget as your needs or the needs of your family change. If your income increases or decreases, you will also have to make adjustments. The important thing is that you have a plan and that you are in control of your money.
Last but not least, remember to always “Make Prudent Financial Management a Way of Life!”
