Budgeting is something that every adult has to deal with.
To be honest, I haven’t done any real budgeting until I turned 30. I believe no one knows how long they’ll live, so we might as well make the most of it. I used to spend all my money on trips, food, and books (all those $10 books on Kindle add up a lot). Now, I’m in a new phase in life and I’ve decided it’s time to do proper budgeting.
Here are 5 easy steps to help you get started on budgeting.
1. List your income and expenses
The first thing you need to do is list then your monthly income and expenses. Expenses can be divided into “mandatory spending” and “discretionary spending” (i.e., needs vs. wants).
Mandatory spending includes:
- Mortgage or rent
- Bills (electricity, water, gas, internet)
- Groceries and food
Discretionary spending includes non-essential items like shopping, dining and take outs, traveling, and so forth.
Making this list will give you a clear idea of your spending habits, how much money you actually need, and how much money you can spare. Remember that these figures are not locked — certain items may vary from month to month and you can change your allocation as long as you do not exceed your income.
The traditional way to do this is by pen and paper, but now there are a number of apps you can use to list down your spending easily.
2. List your goals
List your short-term and long-term goals.
Every person has different short-term goals. Mine is to pay off some of my debts this year and then start saving for moving to a different place. Another is to extend our farmland over the coming years. Hali already has a small plot that we’re starting to propagate with fruit trees and vegetables, so we can export to the city.
Long-term goals include purchasing a house, retirement, and so forth.
3. Cut your spending meaningfully
Based on your income and expenses as well as your goals, you can cut your spending meaningfully and reasonably.
There are certain ways you can do this depending on your lifestyle. You can cook at home and bring lunch to work instead of dining out. You can invest in a good coffee machine or buy good coffee or tea instead of heading to cafes every day. Maybe you need to stop looking at Lazada or Shoppee every time there’s a sale (*cough, cough). It’s also a good idea to use cash instead of credit cards, so you won’t have to deal with interests.
If you decide to cut your spending, make sure to make it SMART (Specific, Measurable, Assignable, Realistic, Time-bound). In short, make it something that you can actually do.
My personal tip is to do it in a way that doesn’t feel like you are depriving yourself. I believe in the Law of Attraction and in my opinion it’s important that you feel you are abundant, even when you are budgeting. Only you know how this can be done, which is why you get to decide where to make the cuts.
4. Pay off your debts
Paying off your debts should be a priority. Debts incur interest and over time this can slowly eat away at your funds. In some countries, this also affects your individual credit standing, which will affect your acceptance when applying for rentals, loans, etc.
Most people pay off their debts from their existing salary. Some get a temporary side job. Others get professional assistance to help with their financial state. Here are more ways to get out of debt.
Once you’ve settled your debts, you’ll find that you can budget more easily — and more importantly, you’ll have peace of mind.
5. Look at ways to increase your income
One of the most important advice I’ve learned is to ask yourself, “How can I afford that?“
Cutting your spending isn’t the only way to achieve your financial goals. You can also find ways to increase your income. You can aim for a job promotion at work or perhaps start looking for another job that offers a better salary. Maybe you can find a side hustle that you can do on your free time. Maybe you can start a small business or look at investments. Nowadays, there are numerous things you can do to earn income online too.
When I was just starting as a software engineer, I received a meager salary in my local post. I wanted to buy a reliable laptop for home use, so I did copyediting on the side. It was tiring because I would go home from work to edit papers, but it was also fulfilling and after about 2 months I finally saved enough for a new laptop.
I like this advice because not only will it give you extra money, it will also make you realize that there are other ways to earn money aside from your day job. Learn to look at the opportunities available to you, so you can increase your income.
Tell me about your budgeting journey! Do you have other tips you can share? Post them in the comments section below!
Katherine Cortes is a long-time backpacker and a freelance writer/editor. She likes beaches, snorkeling trips, and relaxing staycations (preferably with bath tubs!).