I used to work hard at earning money each month. However, at the end of each month, I don’t seem to have any money left in my bank account. Saving money seems to be a challenge to me. No matter how much I earn that month, I don’t seem to be able to save at all.
I start to realize that I am not going to have enough for my retirement if I keep going this way. I ask myself, why others can save and accumulate yet I am not able to do so?
A revelation came to me that day. I can only be financially successful if I know how to manage my money first. If we look at any successful enterprise today, they employ CFOs or financial accountants to ensure that the company are spending within its means. They have a system of budgeting method to ensure financial prudency. I realized budgeting will be the first step towards my financial success.
Therefore, I started to do budgeting. Initially, I felt that it is too troublesome for me to track how much I earn and how much I spend. Doing up the accounts is a chore. Then again, I tell myself why this is a necessary step, and how it can bring tremendous amount of benefit to me. Just like running, some of us may find it a chore, but it can bring tremendous amount of health to a person.
Not just another budgeting article
There are countless articles out there already talking about how to budget for your finances. The difference here is that I will be sharing from my own personal breakthroughs, and methods of budgeting that I have adopted that has successfully transformed me to be a money saver.
So how I do my budgeting
1. Budget based RECEIVED income, NOT future income
I do my budgeting based on my received income. I will only spend my income after the income is received into my bank account. I do not budget based on the future income that I am expected to receive.
This is because I do not a want to spend my future money. What if the income I am expected to receive came in late or did not even come in at all for any reasons? Think of it, if I keep spending future money, I will not be able to save any money in the future as they are already “spent”.
2. I will save and pay myself first before spending
In every budgeting, I will set aside an amount to save each month into a separate bank account, before allocating the rest of my income to other expenditures. This separate bank account is one that I will not withdraw any money from it “no matter what happens”.
There will be times where I think my income is not enough to pay off all my expenses. In those times, I will still force myself to save first. Then I will cut down that month’s expenses so that I have enough for the month. Do remember, saving even a small amount is better than no savings at all. Make savings a habit, no matter how little it is.
Savings is like a workout in a gym. If I keep savings, over time, I can build up my savings muscles.
3. Consider which expenses to pay first
Credit cards payment and loans with the highest interest rates must be paid every month ahead of all other payment. Do weight and compare which are the loans that will cost you the greatest amount to liability and pay them off first.
4. Do it monthly, and do it immediately
I will do my budgeting monthly. I will want to do the budgeting immediately when I received the money in my account. This is to prevent myself from spending the money before I budget for it.
5 benefits I got from budgeting
1. Being prepared
As a self-employed person, my income can vary from month to month. Making things worse, my expenses can similarly vary from month to month too.
By doing a budgeting, I can know in advance my financial situation for that month. If I expect higher expenses (e.g. insurance premium due) for that month, I can tighten my belt and be more conscious on my spending. I can easily avoid getting into a situation of overspending.
2. Know myself and my spending habits
By having a budget, I will know my expenditures patterns and where my monies are going to. It provides me with good insights on my savings and spending habits. From these insights, I can decide what kind of expenses are not necessary and correct my wrong spending habits.
3. The need to increase income
If I constantly don’t have enough to spend or not saving enough even after trying very hard to cut down my expenses, it is a sign that I am not earning enough. Do not mistaken me here, I am not talking about having a luxury or exorbitant lifestyle.
If I cannot even provide the basic comfort for my loved ones, it is really time to do something about it. I will be truthful to myself and ask what is the kind of lifestyle that I wanted for my family. If I do not earn enough, I got to increase my income.
4. Ready emergency funds
After each successful budgeting, I found myself being able to accumulate more money and having a ready emergency funds. The logic is simple here. If I pay myself first, my savings will grow.
Why is this important? Previously, I do not have any kind of emergency funds savings. Whenever any unexpected expenses crop up, I find myself not having enough money to pay for it. Then I may have to borrow it from somewhere. Borrowing it from credit cards will surely incurred interest payments, while borrowing it from someone may result in losing personal credibility or friendship.
Remember, borrowing is never a good solution. I discover only with a good amount of savings then I am secured if any emergencies arise. In times of emergencies, the last thing I want to be worried about is money. My focus should be handling the emergencies ahead of me.
5. I developed Money Knowledge and Money Discipline
I used to ask myself, why I cannot be successful at savings? If I can be good at running why I cannot be good at saving? To me, training to be a good runner should be a much harder work that saving money, yet why I am not able to save?
I discover what makes me successful in my running is my knowledge and the discipline in running. As a runner, I trained regularly and constantly find out how to be a good at running. Even if the training is going to be tough, I am willing to do it.
So, I apply the same principles to savings. I develop financial knowledge and build up my money discipline. My regular budgeting becomes like my running workouts. No matter how troublesome the budgeting process are, I will still do it every month. I believe, success will only come with those with discipline, and discipline is a necessary for me to build a long-term financial success.