A BUDGETING is a critical component of personal finance. A good budgeting is one of the key component of the success to achieve financial goals. A budget outlines your income and expenses, and helps you to allocate your money according to priority.
Here are some reasons why budgeting is important:
- Helps you to understand your finances: A budget provides a clear picture of your financial situation. It shows you how much money you have coming in, how much you are spending, and where you are spending it. This information is essential for making informed financial decisions.
- Helps you to prioritise your spending: A budget helps you to identify your most important financial goals and allocate your money accordingly. This ensures that you are putting your money towards the things that matter most to you.
- Helps you to save money: A budget can help you to identify areas where you can cut back on your spending, allowing you to save more money for your financial goals.
- Reduces financial stress: By having a budget in place, you can avoid over-spending and ensure that you are living within your means. This can reduce financial stress and help you to feel more in control of your finances.
- Helps to anticipate: A budget can help you to forecast upcoming spending, especially variable spending. This can reduce the shortfall of payable variable spending.
It is advisable to have yearly budget and breakdown into monthly or frequency of incoming money. Here are seven steps to create a budget:
- Determine your income: Calculate your total income, including your salary, wages, and any other sources of income.
- Identify your expenses: Make a list of all your expenses, including fixed expenses (such as rent, utilities, and loan payments) and variable expenses (such as groceries, entertainment, and clothing).
- Categorise your expenses: Group your expenses into categories such as housing, transportation, food and entertainment.
- Set financial goals: Identify your short-term, medium-term, and long-term financial goals, such as paying off debt, saving for a down payment on a house or building an emergency fund.
- Allocate your money: Allocate your income to each expense category based on your financial goals and priorities. The more accurate the better.
- Track your spending: Track your spending throughout the month to ensure that you are sticking to your budget. Use a budgeting app or spreadsheet to make it easier to track your expenses.
- Adjust your budget as needed: If you find that you are over-spending in a certain category, adjust your budget accordingly to ensure that you are living within your means.
Creating a budget takes time and effort but it is an essential tool for achieving financial security and reaching your financial goals. Have a RM100 weekend with your partner to make it fun in the process.
As the saying goes, discipline is freedom. The habit of budgeting would work and helps you to achieve your financial objectives. – March 5, 2023
Kelly Wong, CFP is a CEO of Alpine Advisory Sdn Bhd and a certified member of the Financial Planning Association of Malaysia (FPAM).
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
