Income and expense
First of all, you need to start with calculating exactly how much you earn. Of course, if you are doing one set job, then this is quite easy. However, a lot of people do several jobs. Hence it is important to take into account all these sources of income. On the other hand, let’s say that you are doing a job where the salary fluctuates (for example, a job where you get paid for the hour, but there is no set amount of time you work per month). In this case, go for the least amount. (It doesn’t hurt if you get to save more)
Then take a week to track expenses. Write down every single cent you spend, and for which purpose you did so. Also note the fixed costs separately – they are the ones that you need to pay every month for a particular service or a product. For example, your child’s ballet class fees, Netflix account subscription, mobile subscription, etc.
Then you proceed onto tracking trends. In this case, you are required to go over the expenses you wrote down during the week, and note which categories you spent the most for. Is it for shopping, entertainment or for eating out? In these cases, there is always the possibility of cutting them out.
You should then proceed to setting goals for your spending. It is very, very important that you are realistic and practical in this case. You cannot miraculously end up saving 90% of your salary – trying to do so would be a futile effort, and you will be discouraged within a week. A budget should not steal your life from you – it should just make it easy.
Thus, start with setting a goal as to how much you want to save at the end of each month. Then move on to the remainder of your income. Set aside the essential fixed costs (cut down on fixed costs that you feel is a waste. E.g.: If you are not a constant Netflix user, then useless to be paying a monthly subscription for it). Eventually move on to assigning the remainder of the income to daily tasks such as shopping, grocery, transportation, etc.
Set aside for emergencies
We never know when emergency situations arise. It might be a medical emergency or a wedding of a close friend that you have to go. Even home renovation costs can be accounted as emergency costs. Depending on your income, decide if you will be keeping an extra amount for emergencies every month, or whether you will be drawing from your savings.
There are many different ways that you can cut down on costs – being creative helps. For example, you can cut down significantly on home renovation costs if you hit your creative button and then look for the essentials in a recycling center.
Save and manage
The trick to efficient budgeting is to save and spend. If you carry your entire salary in your pocket, the chances are that you end up spending them all. Hence, first deposit your savings in a fixed deposit, and put the remaining amount into separate envelopes based on the purpose. For example, for grocery, keep a separate envelope with the allocated amount. When you take that envelope out for grocery, you will automatically be cutting down on unnecessary costs.