Saving with the new year is one of the purposes most common for many people. To get off on the right foot, budgeting is key. This is the first step to really focus on our financial goals in order, not just ideas and desires to control our expenses.
One of the most important functions of a budget is that it will clearly show you how much money goes into your accounts. Additionally, you will know where you spend it, area by area, and this will allow you to assess if you are wasting your resources on issues that are not as high a priority, and start making adjustments.
Even if they pay you by the fortnight, the ideal is that you make a monthly budget adding the total income for the month, as well as the expenses that are monthly, such as the mortgage or rent, services such as electricity, water, telephone, school, car or transportation, etc.
The importance of a budget for savings and your finances
As we mentioned earlier, part of the importance of a budget is that you can plan how much to spend or save in a month’s period and know exactly where you are sending your money and assess if you are putting it to good use. You can balance: which expenses are important, which are not and lower or eliminate them.
Remember that the budget requires a list of expenses that you have to make in writing, either in a document or record it in a table of Excel on your personal computer. For a budget to really be a working financial tool, you have to be honest regarding your income and expenses. You should not make calculation errors, check well where each weight goes. Do the following:
- Agglomerate information from the last 3 or 4 months of:
- Electricity, water, telephone and internet bills.
- Add up what you spend on gas and home maintenance.
- Add (if applicable) monthly school fees for your children.
- Consider your credit card payments.
- Divide annual expenses into 12, such as auto insurance, property, and other taxes.
- Don’t forget health insurance, gym pay and membership.
- Add expenses such as: gasoline or cost of transportation, food, medicine, footwear and everything that is current and mandatory household expenses.
- Make another list where you add: outings to eat, trips, the spa or beauty salon, movies, buying books and other topics of pleasure and entertainment.
- If before going to the office you buy a coffee, a bread, a breakfast or another craving, do not minimize this expense and assign a monthly amount. These small disbursements are called ant spending, because over a period of time, they add up to large amounts.
If this all seems like too much work, value reviewing your expenses with the card of the last months. In fact, making all the possible purchases with your plastic allows you to make a better record of your expenses, especially since with banking applications, you can obtain valuable information to “know yourself better” in financial terms.
To fulfill the purpose of saving money, you need order and that requires a budget. / Photo: Orlando Samaniego
Divide your monthly expenses into fixed and variable
One way to organize all this information regarding areas where your money is going is to divide them into expenses that are fixed and variable. For example: Food, services such as water, electricity, telephone, housing, transportation, among others, are fixed expenses. While there are variable expenses such as: painting the house, taking the car to the maintenance service, making a gift to a friend or relative, etc.
By dividing the expenses into fixed and variable, you can also see that some are practically mandatory and others are expendable. For example, you can’t stop eating, but you can stop buying so much coffee – the kind from chains, nothing cheap – and prepare it at home or your office.
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You can analyze which of the obligatory expenses you can reduce. An example is food. As we said, you cannot stop eating, but you can analyze if changing the brands of some generic products, such as soaps for washing clothes or dishes, are cheaper when you buy them from less recognized brands.
In the case of food, there are establishments where you can buy at wholesale prices and that reduces the cost of buying in small quantities. You can do this with non-perishable foods, soaps, detergents, among others.
Do not forget that when making your budget, you must take into account fixed expense factors that are changing. One of them is inflation, but there are other more obvious ones, such as the electricity bill. In summer, amounts are usually paid that can be up to double what we pay in winter. Don’t forget that in your calculations.
The most important part of having a budget
Finally, when making the budget, you will clearly have a kind of diagnosis regarding your personal finances. There you will clearly see the causes for them to enjoy good or bad health. One of them is that you will be able to find out, with pesos and cents, if you are spending more money than you earn. If this is your case, changes are urgently needed.
The first and most immediate is cut expenses. These are easier to trim in the variables, but as we told you above, you can also do it in the fixed ones. Did you see if there are cheaper phone or internet packages than the ones you have? Are you paying for an expensive gym and might you go to a cheaper one? Are you going to the gym or do you just pay for it and never visit it?
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Remember that you have many items, in writing, in your spending budget, from which you can make adjustments, either by eliminating some or spending less on them.
The key for your budget to work is that it generates changes and actions. Taking an X-ray of your personal finances will be of no use if you don’t use your budget.
So that your budget stays “alive”, you must continue recording your income and expenses. It is ideal to use free download applications to record your movements. This will not only allow you to know where your capital is going, but also to be aware of the balance between income and expenses, so that the latter never exceed the former.
If you consider that you have little time to make a detailed budget, or you do not feel confident that you can do it correctly, you can use various methods to separate the money, where you dedicate an amount for each type of expense and avoid spending more. We recommend the envelope system.
If you already realized that no matter how much you cut, you are still in trouble, value looking for other sources of income alternatives, but the first thing is adjust to what you earnOtherwise, you will never have healthy finances.
For more information, follow the section on My Pocket Savings.
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