How to make a good personal budget

Are you perpetually short of cash? You probably have been spending more than you should. A common problem, not only for minimum wage earners but also for many big-time earners, is budgeting. It is human nature to spend more than what is rational. At some point or other, we find ourselves struggling with coins and breaking our piggy banks, trying to make ends meet in the remaining days before pay day.

Some say a better solution to spending less is earning more. This is true if you can earn more without too much effort, but for many people this is not feasible. This leaves saving more as the only option for some. If you are one of these, use this tried and tested formula:

Income – expenses – savings = Disposable income

Income

After deducting taxes, required fees in government agencies, and other state-mandated expenses from your income, there is still the matter of your cost of living. Never treat your net income as your disposable income because there are still a lot of expenses you need to take into account.

Expenses

Rent expenses, water bills, electricity bills and your post-paid plans are just some of the things you need to cover monthly with your limited salary, not including daily expenditures like transportation and food expenses. You can classify your expenses into several categories:

Monthly/annual household expenses. These are expenses you need to pay every month or every year, such as your rent or water bills. You have no choice but to pay for them, unless you plan to revert to primitive living, with oil lamps as light source. Your annual expenses may also include your children’s tuition fees. Ready a percentage of your income every pay day, so that by May, you already have enough to pay for their enrolment.

Daily expenses. Daily expenses are those you incur everyday: payment for the train or bus ticket, food, and the rest of your daily needs. The good thing about daily expenses is that you can always find cheap and cost-cutting alternatives such as walking halfway to work, or eating at the nearest karinderya, bringing your own homemade lunch, and skipping on smoking not only to cut cost but to improve your health.

Miscellaneous expenses (contingency fund). You do not know when you might need a quick trip to the doctor for a check-up, or when you might face unexpected expenses like needing to buy an emergency gift for your nephew’s birthday that you clearly have forgotten or a gift for mothers’ or fathers’ day. The best that you could do is to have emergency money for any surprises like these. If it goes unused by the end of the month, then either treat the amount as your additional saving, disposable money, or a bit of both.

It is also advisable that you use your credit card as if you were paying in cash. Never forget that you would later on pay for what you charged. Use the credit card only if what you are buying is within your budget and that you have enough to cover for the expenses you created with your card.

Savings

The common practice for most of us is to spend, and then save what is left in our wallet. What if there is nothing left of your salary after buying that expensive gadget? It is more practical to set aside the amount you want to save first and then spend what’s left. By doing this, you are making sure that you will be able to save some money for your future. Know that as early as today, you have to save up for your retirement.

Disposable income

After accounting for your monthly expenses, and the amount you want to save from your net income, what is left with you now is your disposable income. Feel free to spend this amount for whatever you want to spend it on—on the latest gadget, on the new restaurant that opened across the block, on a date, or on a shopping spree in the midnight bazaar. Give yourself a reward because you know that you earned your money through your hard work, gallons of coffee, and loss of sleep. Let yourself enjoy the fruits of your harvest because at the end of the day, your goal should not only be to meet all the expenses of your family, but also to make yourself happy and content.

*Originally published by the Manila Bulletin. C-4, Sunday, May 25, 2014. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.