Payday — the one day that everyone looks forward to every month. So now that the company has credited your hard-earned salary into your bank account, it is time to put those budget plans of yours into place. As you recall how your “foolproof” budget plans failed over the past few months, you vow to stick to your new financial budget plan. However, as the middle of the month draws near, you find yourself dipping into your reserve savings — money that was “untouchable” and strictly meant for saving.
If you are already thinking, “That sounds a lot like me.” Fret not, there are millions of others who are facing the same financial problem. Budgeting is never as easy as it sounds. It might sound deceptively simple — setting aside X number of dollars to save, X number of dollars for your expenses and be disciplined enough to stick to the budget and control emotional spending.
However, the major reason why many find it difficult to stick to their budget is because they do not know exactly how much money they should budget for their savings and expenses. Before you start frantically worrying about how to take care of your expenses, here is a simple rule of thumb when it comes to spending your paycheck. Savings, Bills, Fun — in that order.
Savings
Each time you receive your paycheck, the first thing you should do is to set aside a portion of it to save before taking care of bills and other wants. Consider saving at least half of your take-home pay as this will help you secure your financial foundation. This will guarantee that you are actually saving the money you should be saving. Grow your savings by putting it in a fixed deposit that promises higher interest rates or insurance policies to make your money work for you in the long term. While the initial interests earned might be a meagre amount, the compounded interest can be quite substantial in the long run.
Bills
Bills and expenses typically do not vary much from month to month. Stay committed to paying them on a timely basis to avoid incurring unnecessary late charges and interests. Ideally, aim to keep these bills and expenses no more than 30% of your take-home pay. One tip to free up more room in your budget is to identify important payments or contributions and trim unnecessary costs in this area. For instance, do you really need that Netflix subscription or that credit card with an exorbitant annual fee?
Fun
Finally, the great part about budgeting — flexible spending. After all, you deserve that emotional spending after budgeting for savings and debt payments. These are the day-to-day expenses that can vary from month to month. It includes eating out, groceries, holidays, entertainment, shopping etc. However, be careful when it comes to flexible spending. Identify what is a “need” and “want”. For instance, when it comes to groceries, rice is a need but cookies are a want. You may end up spending more on “wants” than you think and start dipping back into your savings. As a guide, be aware of your spending and avoid going over your total flexible budget each month. With the upcoming festive holidays in December, some companies may bring forward the payroll schedule, it is time that you can start doing some planning and give yourself and your family a treat to create a lasting and loving memories in 2020.
