Confession time: do you live from paycheck to paycheck? If you find yourself constantly overspending and feeling broke, read on for budgeting tips that will stop your money from burning a hole in your pocket.
Words by Seng Bingyang
All of us are familiar with the concept of saving.
We know that it’s important not to spend all our salary, but to save a portion of it.
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Some think of saving as “paying yourself first”.
However, what if we don’t have much to begin with? Is there a way we can reduce our spending so that we have a good amount to pay ourselves with?
Setting up a budget
Money is essential for many things in life. The problem is, especially for many young people, money is limited.
Like all resources that are finite in nature, we need to allocate our money very carefully.
This is where budgeting — or creating a plan to manage your money — comes in.
Some people feel that having a budget strips them of the freedom to enjoy their hard-earned cash.
Others secretly fear that they will fail to adhere to their budget goal, so they choose not to set one instead.
Why is it important to set a budget then?
Having a budget will allow you to remain focused on your real goals (the ones that you hold close to your heart) and not be tempted into making an impulse (read: unnecessary) buy that takes you further away from them.
Unless you have only fleeting thoughts of a sound financial future, following a planned budget will definitely come in handy for you.
Alright. How do I start?
You want to be clear about where your money comes in from and where it goes out to.
Don’t worry, this won’t require you to pick up financial accounting and learn about cash management and financial statements.
Even if you’re not good with numbers, there is one very simple budgeting strategy you can follow:
Step 1: Decide on an $X amount that you will strive to keep to every day
I know that if I don’t try to limit my daily spending, I’ll probably find myself in “dire” straits towards the end of the month. So many days left, so little money.
I’ve also seen many of my peers “suffer” this fate.
So when I started budgeting, I allocated $30 per day for variable spending.
This includes my meals, transport, and entertainment expenses (going to gym, movies, and having the occasional drink with friends).
Here’s how it works: if I were to meet a friend for a $20 lunch today, my budget stops me from hitting Toast Box later in the afternoon for my favourite milk tea. It also prompts me to think creatively for places to go to for dinner that won’t bust my daily budget.
$30 a day over 30 days – that’s $900 a month.
What if I exceed my $900 budget?
While I used to be able to limit my monthly expenses to $900 quite easily, it got progressively tougher as I started meeting more people in the course of my work.
Still, I make it a point to stick to my budget. I rarely, if ever, exceed my budget by $200 to $300 each month.
This is because I don’t work all 30 or 31 days a month, and neither do most young professionals.
You might wonder: if $1,200 is a comfortable budget for me, why not just raise my daily budget from $30 to $40?
There is some consumer psychology involved here, but the short answer would be that setting aside $1,200 is a sure-fire way for me to end up spending $1,500. (Or more.)
In other words, if you do not intend to spend more than $1,200 a month, then $40 a day is cutting it too close for comfort. You are better off setting a lower budget and providing for possible contingencies.
Bear in mind that your set budget should be challenging yet realistic, otherwise you may simply give up after a couple of days.
Step 2: Track your daily spending
There are many tools that can help you track your daily expenses.
For instance, you can try using the Expense Manager app, which we’ve talked about here.
What it does is to help you keep track of your cash flow to see if you’re spending within your means.
Step 3: Monitor and review
I understand that it can get discouraging if you fail to adhere to your budget goal. So start slow, and take it easy at the beginning without trying to be too precise.
It won’t be long before you get a better idea of what works for you and what doesn’t.
Remember, you can always adjust the $X budget as you deem fit.
Bonus: For those who still have difficulty controlling their expenditure
An old-school (but effective) method you can try is to purchase a small notebook to carry everywhere you go, and to note down every single transaction you make over the course of a day.
You should commit to this activity for at least 21 days. (This is because research suggests that it takes a minimum of 21 days to form a new habit.)
Record the following details in your notebook before you pay for anything:
- Time – When did the payment occur?
- Location – Where were you when you made the payment?
- What – What item/activity are you paying for?
- Price – How much does the item/activity cost?
- Need or Want – Is the item/activity really necessary?
This method will require some discipline on your part.
After all, it is easy to make the necessary entries. It is equally easy not to do so.
What you ideally want to do is to create the habit of taking ownership of your spending needs.
The notebook acts as your accountability partner. By keeping a thorough record of how your money is spent, and asking yourself truthfully whether the spending is worth it, you will consciously look for ways to avoid unnecessary expenses.
For example, let’s consider a scenario when you wake up to a rainy morning. You may think of taking a taxi to work for convenience. But as you reach for your trusty notebook to make the entry, you should be having second thoughts about flagging down that taxi.
It is likely that in the end, you will choose to take an alternative mode of transport, because you are reminded that cab rides are more of a “want” than a “need”. Oh, and it’s also not cheap.
Another tip I have is to keep minimum cash in your wallet, and to pay for your expenses upfront with cash rather than credit cards.
The idea behind this is simple: when you spend cash, you tend to spend less of it. Instead of charging every expense to your credit card (and seeing the bill only at the end of the month), you see actual dollar bills leaving your hands – and therefore feel the pinch more.
This way, you force yourself to consider just how much of your daily budget you’re spending each time you pull out your wallet.
Do try these budgeting tips on for size if you feel that you always seem to spend more than you should.