Budgeting 101

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budgetMany of us are misled to believe that in order to save effectively, you must earn more. While it is true that a higher salary can indeed help you achieve your financial goals that much sooner, what I realized over the years is that your earnings have very little to do with how fast you can save money but rather it is your budgeting skills that matter most. In fact, when I was younger, I found that I tend to spend more whenever I earn more, and soon enough discovered where the problem lies- my lack of proper budgeting.

Budgeting is how you allocate your financial resources to meet your daily expenditures, from food, utilities, transportation, to savings and debt repayment. It’s how you set limits to your outgoings and monitor whether your every financial move is right on track. No matter how much you earn, without a proper budget, all your money will disappear quickly.

The most difficult part of sticking to a budget is the feeling of being restricted. When we’re following a laid out plan, we sometimes feel deprived and caught between giving in to our wants and sticking to the goal. More often, the result is we are often swayed.

For me, the key to combat temptation is giving room for our desires. Many individuals force themselves to comply to saving 50% of their salary, only to find themselves exhausted and unable to commit to the long term goal. When you’re working overtime every day, with most of your take home pay going only to basic needs and your bank account, I won’t be surprised if you give up.

While commitment is truly important, I don’t recommend being too hard on yourself. My friends always ask me how I remain disciplined when it comes to handling my finances and I always tell them the same thing- Leave a little room for fun. It’s really important to ward off boredom and temptation.

They also ask me how much they should save each month, but believe it or not, there isn’t a precise answer. While there are saving guidelines that you can find helpful, I always advise that there should be no rules. For me, saving 5% of your income diligently is much better than the unsustainable 50%.

For the sake of having a guideline, take these figures for example. In my first three years of work, I committed to saving 20% of my salary. Being the typical new earner in the real world, there were so many things that I still wanted to do and wanted to buy. I recognized those feelings and admitted to myself that saving 50% of my salary would drive me insane. What I did instead was use only 50% for basic needs, allocate 30% for my wants, and 20% for savings. After every few years and as I got used to managing may finances well, I increased my savings to increments of 5%.

The bottom line here- Be realistic. Consider what you feel. While it’s not right to put savings on the back burner, you can do this without feeling restricted. Adding an element of fun and excitement can go a long way to your budgeting journey. For more helpful budgeting tips, check out http://money.howstuffworks.com/personal-finance/budgeting/10-tips-for-staying-on-budget.htm

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