This is a follow-up article on an earlier posting entitled “Choosing the Right Budgeting System for You.” There are some people who scoff at the idea of keeping a budget or having a spending plan. Maybe they tried to follow a budget plan and it did not work out. Below are some suggestions on creating a good budgeting system.
A good budget has to be well planned. It should not be done in a rush and therefore inaccurate. It should contain all relevant information such as total income, savings, mortgage or rent, car loan repayment, food, insurance, transportation, utilities, tuition fees, mobile phone, children’s expenses, recreation, personal spending money, etc.
Create a realistic budget
Every household will have a different budget plan. A household with one child can allocate more money for entertainment compared to a household (earning the same income) that has four kids. Another example is cutting down on your budget for food expenses (which is already tight) just to afford a new pair of shoes or a new mobile phone. Or allocating money for a gym membership when you actually do not have the budget for it (credit card anyone?).
Whenever there are unexpected expenses or there are changes to the cost of living (e.g. emergency visit to the doctor or dentist or arrival of a baby), be prepared to revisit your existing budget plan and make the appropriate adjustments.
Those involve or family members who are affected by the budgeting system should cooperate to make it work. To ensure the success of a budget plan, everyone must stick to it. Moreover, the success or failure of a plan will have an impact on everyone living in the same household.
If there is a budget shortage, what would you cut first?
The answer will vary for everyone. Possible areas to cut spending are dining out, entertainment, food expenditure, new clothing, vacations and personal grooming expenses (beautification). If the budget is tight, some households may delay or postpone on doing house renovations, purchasing a new car or buying new electrical appliances – avoid lifestyle inflation. Vacation plans will be canceled or postponed and some may even switch to a cheaper phone plan – scale-down on lifestyle. Do you get the idea?
Lastly, do not assume that just because you have a budget plan, your finances will improve automatically by leaps and bounds. Yes, it will improve as you know where your money is going but how you manage your money overall (e.g. investment return for growth) will also determine your financial well-being.
Jacquelyn is the co-author of the books “Teaching Your Kids About Money” and “Top 93 Personal Finance FAQs in Malaysia” with KC Lau. Jacquelyn is the pseudonym used by Amy Sipagal.