♥ The Candy Factory

Frivolous, frothy fun!

Finance #1 : Budgeting

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Do you have a personal financial budget?  Many people I know don’t.  ‘I spend lesser than I earn‘ or ‘My spending every month is arbitrary‘. If you do spend less that what you earn, that’s great news but a budget is still important because you might have a bigger need that you thought.


1) Tracks your expenses
Know how much you can really spend on an item. Just because it’s on sale doesn’t mean you need or can have it.
2) Curb your spending
Many are resistant to this. Not many people like to control their spending habits.
3) Achieving financial goals
4) Debt reduction

A budget will not solve all your financial woes and it won’t let you have more to spend but it will (hopefully) let you spend, save and pay off your loans. You might even have enough savings for that holiday or bag you’ve been wanting!

I personally advocate monthly budgeting but there are various advantages to annual budgeting . Annual budgeting is good to account for items like taxes, big-ticket items, end-of-year holidays and so on. But monthly budgeting is easier and I personally find that I can follow it better.

1. Take account of all your income (net of taxes and CPF) and expenses

2. Classify your expenses
You can have categories – Food, Beauty, Transportation, Rent. Make it as detailed as possible.

I believe this is the most important part of budgeting. Many people make the mistakes of creating a list of expenses and find out at the end that they have no savings. Instead, SAVE FIRST. Tell yourself how much you want to save and commit the money. I know some people who save 50% of their earnings but that can be a very lofty goal.

I suggest saving 20% of your net income. Get a GIRO account which deducts automatically so you will be forced to save. Painful but effective. Or, if and only if you have loans, use the 20% to pay off your loans first.

4. Balance your budget.
Net Income – (CPF) – (Savings/ Loans) = A = Money you can spend
A – (Expenses) = B = Emergency Fund

B – I suggest you set aside some money every month for emergency use, in case you need cash urgently. You never know what will happen. Experts suggest you save up to 6 months of salary, in case of any unfortunate events. Well, if you don’t use the extra cash, you can always give yourself a big treat! In my example below, the B amount is $100, which means I have an extra spending power of $1200/year. Increase it and you’re on your way to an exotic holiday, or a new, nice designer handbag!

Here’s an example of a typical budget I created, it’s really simplistic but realistic. You can adjust the income and expenses to suit your lifestyle! The only thing I will do is… increase the amount of B.



Written by wonderwool

July 22, 2009 at 6:04 am

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