Clueless Newbie in Budgeting:
Ok, I saw your blog last week about why I need to budget my money. But then how do I start?
This is based on my own experience which may or may not work for you. Do whatever works for you. There is no right or wrong way. You should know best how to handle your own money. 🙂
At the start, I had no idea how much money to allocate for anything. I was clueless to where my money was going. I only had a topline idea of my “biggest expenses” which were my room rental fee and the remittance I send home but that’s it.
So what I did was to track my expenses for 3 months. You can use a notebook or an app but being the Excel addict that I am, I created an Excel table.
On a daily basis, I would collect the receipts for all the things I buy or note in my phone the items which have no receipt and at the end of the day I would put that in my lovely Excel table which after 3 months of tracking became ugly.
I categorized my expenses and reviewed them until it was streamlined, it made more sense and it suited my needs. I also assessed after each month my left over money but this is where I realized that I had no left over money and what was worse I was overspending and burying myself in debt.
The end result was shocking, which is an understatement to say at the very least. It really made me realize that I was way overspending on things that are not important, that I did a lot of impulsive buying when I was stressed or feel the need to be pampered or recognized for a job well done and if I just cut down by even 10% my spending it would be extra money for saving, clearing off debt, investing or donating.
Based on the 3 months data and a firm resolve to change my spending habits, I allocated portion of my income to each category (e.g., food, transportation, rental fee) and introduced categories for love offering, saving for my emergency fund, clearing off debt and investing for my retirement fund. I also later on added new categories like education, travel and play because I also need to take care of myself otherwise the inner me might rebel and go on a shopping spree.
Education fund is to be used for further learning by buying books or attending seminars or webinars. Just last year, my travel fund which was unused helped me pay for the blogging workshop. This made me realize the importance of education fund and that it will help me to attend a seminar or enroll in a webinar without feeling guilty. Don’t get me wrong. I do have an education fund but it was not enough for the blogging workshop especially as i have enrolled in other seminars, webinars & LifeMakeover Coaching aside from the books I bought.
Looking back, I know that I should have cleared off all my debt before I started investing but given that time or my age is against me, that I might be discouraged that I will never be able to start investing for my retirement fund and just go back to my old ways of spending I decided to do it all at the same time.
I don’t recommend this but I don’t regret this decision. Because I can see my saving/investments growing and my debt decreasing at the same time, and I have a clear and defined time line for zeroing out my debt. I am so looking forward to that day. I can really see light at the end of the tunnel. 🙂
I first did this exercise 3 years ago and I have not stopped doing it. I still track my expenses on a daily basis. I even “enhanced” my Excel file to capture in a one-pager summary the total expenses by month and category. This is for me to check if there are still opportunity areas for further cutting down my expenses.