This is the fourth post in the Money Girl’s Beginners Guide to Becoming Rich. To read all posts in order, start with Change your Money Mindset then continue reading the rest of the series on this page.
Do you remember your financial goals that you’ve written on our Set Financial Goals post? Of course, you can’t expect to reach your financial goals without developing a plan for spending and saving. Today’s task will be the most important task of the series. The reason why this task is so critical is that if you change your budget, you change your life.
Creating a budget might feel uncomfortable at first, because we are essentially putting restraints on spending habits that can be really hard to break. But if you commit to this entire process, you’ll not only have control over what you spend by the end, you’ll also be able to save some extra money on the side, plan for your future and payoff existing debt!
How much should you save? To start, here’s a simple strategy you can follow – The 10/20/70 Budget — Bo Sanchez’s Financial Formula. Set aside 10% for Tithes, 20% for Investments, and live within 70% of your income.
{Related Post: 5 Easy and Simple Percentages for Your Budgets That You Can Follow.}
Now, settle down, grab a snack, a calculator, your Income and Expense Tracking sheets, and all your monthly bills and start working through today’s post slowly and carefully.
Are you ready? Okay, here we go.
1. First, print off a printable version of the Budget Worksheet or download an Excel worksheet. Either way, you want to have at least one of them handy while we work our way through this next section.
Use this FREE budget worksheet from Money Girl Philippines to help guide you through your first budget!
Download the printable Budget Planner Worksheet (Simple) or the Budget Planner Worksheet (Long)
Download the Budget Planner Worksheet {Calculates Automatically!!}
2. On the budget worksheet, write down the month and the year. You always budget for the next month.
3. Using your Income Tracker, write down your projected monthly income and any other sources of income you may have at the top portion of the worksheet. You must use “monthly” amounts.
{Related Post: How to Budget When You Don’t Have a Regular Salary.}
4. We’re going to skip down to Saving now. YES, you have to save. Don’t bother arguing, you HAVE to save. Personally, I would suggest saving 10% of your monthly income, but let’s start with 5% and work from there. For example, if your projected income is Php10,000, at least 5% of that amount or Php500 should be alloted to savings.
5. Next, we break down your expenses. In our last post, we kept our expense categories fairly broad, but now, we’re going to break them down into mini-categories and assign them as either a fixed expense or variable expense. Separating our expenses matters because we want to know exactly what we can change, and what we have to leave alone.
Here’s a quick definition of those terms in case you aren’t familiar with them already: Fixed expenses generally stay the same month-to-month and are due on a regular basis, while variable/discretionary expenses may vary by a little, or by a lot. Examples of fixed expenses would be your mortgage or rent payments, utility bills, and loan payments and all insurances. Variables are pretty much everything else, because they change each month depending on your needs.
6. Now it’s time for the fixed expenses. Based on what you spent last month, start by filling in the monthly budget amount for all fixed expenses. Remember, fixed expenses can’t change very easily. To make it easier, round up to make sure you have more than enough saved each month. (eg Php678.50 can be round up to Php 680)
Note: If you have credit card debt, immediately stop using your credit card and set an amount {higher than the minimum payment} to become your monthly “fixed expense” with the goal of paying off that debt as soon as possible. If you have more than one credit card, focus on paying off the smallest amount first.
7. Now, go through your Budget Worksheet again, and fill out the rest of your monthly budget totals aka your variable expenses. If needed, go through past receipts for an average if needed, but otherwise give each category your best guess for now.
8. You’re doing great. When you’re finished, add up all totals – Total Projected Income, Total Projected Savings and Total Projected Expenses. Then, subtract the Total Projected Savings and Total Projected Expenses from the Total Projected Income to get the Projected Balance.
If the Projected Balance is positive, revise your budget by adding all excess money to your savings to have a balanced budget. For the budget to be ok, the Total Projected Balance should amount to zero (0).
If the Projected Balance is negative, revise your budget with any of the two choices:
a. MAKE IT WORK BY SPENDING LESS. You can go back and cut expenses. Variable expenses are much easier to start with, although even up in fixed expenses you can find places to cut like cell phone or cable.
b. MAKE IT WORK BY EARNING MORE. You can make more money. Work harder, work smarter. Get a second job, a better job or start a sideline business.
{Related Post: How to Find Money to Pay Debt and Increase Savings}
There. That’s YOUR budget!
You have a Budget, Now What? Just a few more things to remember:
The first month is always the hardest, so don’t be afraid to go back and adjust your budget if you find they weren’t as attainable as you originally thought.
Continue to work, and work well to track your spending every month and stay organized.
It’s your money. You can do anything you want with it EXCEPT spend more than you make.
Okay, now that you have a budget, you have no excuses. Get out of debt. Live within your means. Make me proud.
In my next post, I’ll share with you steps on how you can continually maintain your budget, which might be the hardest part yet. You’ll also find the secret to control you money instead of letting it control you!
{Go to the next step: Manage Your Money Properly}
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