Day #2: Fine-tune Your Budget – Or Start One

Posted by on Nov 21, 2009 in 25 Days to Healthier Finances, Budgeting | 0 comments

This is Day #2 of “25 Days to Healthier Finances”, a series of blog posts where Frugal Pinoy readers and myself work on 1 task a day to make our financial lives better. Please stay tuned for the next installment of this series, which will be up tomorrow.

Here’s today’s installment:

It’s always surprising to me when anyone with an income doesn’t have a budget. If you read my review of The Millionaire Next Door, you probably know that even millionaires budget. That’s how they stay millionaires.

Sometimes I even hear people say “I have a budget, I know it in my head, I just don’t write it down.” But if you don’t write it down, how do you compare it with your actual expenses? How do you stick to it? This brings us to today’s task…

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Today’s Task: Plan Your Budget

If you don’t have a written monthly budget yet, you need to start one now. As in today, if you can. You may need more information regarding your expenses, but at least start with an estimation and tweak it in the next two months as you watch your spending habits. The important thing is to take at least the smallest step as soon as possible.

Some basic pointers for drafting a budget:

  • If you’re unsure about estimating monthly expenses, especially with food, groceries, and other “fluid” items, track your expenses by writing them down in a small notebook as you spend or by collecting bills and receipts. Then, at the end of the month, use these to estimate what your expenses will be for the following month.
  • Try zero-based budgeting. It’s easier to stick to because you’ve already committed each peso of your income to an expense – even if it’s only on paper. I wrote about zero-based budgeting in a previous post.
  • Include savings in your budget. Because saying “I-save ko na lang kung ano ang matira” really, really doesn’t work.

Should you need any extra help, I’ve listed below some budgeting tips from other blogs. I chose the simplest and easiest tips I could find so that “It’s too hard!” or “I don’t have the time!” won’t be used as excuses.

Also, feel free to use the budgeting spreadsheet I made for Frugal Pinoy readers. It allows you to compare your budget to your actual expenses, and your expected income to your actual income. Don’t forget to watch the video tutorial on how to use it (in Tagalog).

Alternative Task: Improving an Existing Budget

If you already have a monthly budget, try to fine-tune it and spot areas that need improvement. Here are some things you can consider:

What expenses do you have every other month? Every third month? Twice a year? When we budget our money, we usually watch for monthly patterns (rent, utilities, etc.) when there are other expenses that creep up on us less regularly. This may include gas for the stove (for my family it’s every three months or so), car maintenance, dental checkups, etc. Factor in these  items in the appropriate months for a more realistic budget.

In what areas are you usually underbudgeting or overbudgeting? One of my early problems was that I allotted P2,000 worth of groceries per month for my “family” (not technically relatives, but they live with me). As my family grew and as the cost of commodities rose, I kept the budget at P2,000. Soon, it was obvious that it was not a realistic figure.

How do you spend windfalls? Unexpected income or windfalls such as bonuses or cash gifts (insert PGMA joke here) can be both a blessing and a problem. People spend them as soon as they receive them. They say things like “Marami naman akong natanggap, eh” or “Siyempre kailangan magcelebrate”. I hate pointing this out, but here goes: “Eh ano ngayon kung marami kang natanggap, nawala naman agad!”

While there’s nothing wrong with enjoying extra cash, just make sure you can afford it. It’s kind of silly for those who complain that they don’t have enough money, yet they manage to spend their windfalls in one go.

Parting words:

Now that you’ve either come up with a budget or improved an existing one, your work hasn’t finished. It’s only begun. The hard part is committing to it and tweaking it based on your needs as you go along. Then, when living within your means and saving your money becomes a habit, maybe you won’t need that budget anymore.

Image by iprole from sxc.hu

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