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How To Budget So You Don't Go Broke Again

Pay in cash only.
PHOTO: Pixabay

A lot of us are on our knees until sweldo time and have zero savings and emergency funds. It's easy to say you need to spend less, but it's not as easy to apply for some of us. Here are six basic steps to get started so you don't go broke (or feel broke) again.

1. Have a goal.

Why do you want to budget your expenses? Is it just to spend less? Are you trying to save up for something in particular or for unforeseen hiccups? Is it to pay off your debts? Whatever it is, your goal will help motivate you to have and sustain a basic money-smart lifestyle where you actually have money until the next pay check and where you're not spending on junk.

2. Download a budget app to track your expenses.

There are so many budget and expense tracking apps out there for you to choose from and download, and it's not that hard to find one that suits your needs. When you've got it, track every peso you spend for that week or month. That information is vital in figuring out your next steps.

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3. Figure out what percent of your earnings you're willing to spend.

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Consider your goal when you’re trying to allocate your money. If you want to save up for a gadget you're eyeing, ask yourself if you want money to spare for leisure while you're saving up, if you'd rather live with the bare minimum (aka, spending on utilities only) for a while until that big purchase, and so on. After that, do the necessary calculations.

You can have a 60:40 ratio, a 70:30 one, or even an 80:20 one. The higher number can be for your savings and the lower one can be for your expenditure (how it should be if your goal is to increase your savings or emergency fund), and vice versa.

Other people do a 50/30/20 division, where 50 percent of their spending goes to utilities like rent, transportation, and groceries; 30 percent goes to leisure like dinner dates and shopping; and the remaining 20 goes to savings.

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Again, which to pick will depend on why you want to save and what’s feasible for you considering your earnings and lifestyle.

4. Categorize your expenses.

As you monitor your spending, categorizing your expenditure will give you perspective on your lifestyle and what you might need to cut down on. You can have general categories like "utilities," "leisure," and "savings," or specific ones like "rent," "commute," "medication," "eating out," "travel," and "grad school fund." If you want or need a clearer picture of your lifestyle because you spend a lot, then be more specific. That way, you'll see that you eat out four times a week or shop every week—in which case it's time to reflect if you need to go out that often (and if you don't have to, up to what frequency you want or need for the new lifestyle). Doing this will make you realize the concrete steps you have to take to fulfill your goal.

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5. Pay in cash only.

Through this, you can really feel the burn each time you shell out cash, which is supposed to make you do it less. More importantly, it saves you from having debt you have to pay (with interest!) in the future.

Based on the percent of money you now want to spend (from #3), divide that into four to give yourself a weekly allowance. Put one set of bills in your wallet. That's all the money you can spend for that week, so do your best to go through the daily grind with that.

Another way is to make monthly allowances for what you spend on. Remember the specific categories you're advised to have? Every month, allot a certain amount for each. You can have them in labeled envelopes to really force yourself to follow the allowance. So if you're eating out, only use the money in the "eating out" envelope. If you run out, then you stop spending on that unless you still have money from the other categories.

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6. Earn more money if you can't cut costs.

If it's unimaginable or impossible for you to commute to your office instead of driving a car, that means you can't cut down on gas and parking fees, which do make up a big portion of your utilities. Or if you're doing what you can to cut down but you're still short, it might be time to consider earning more money. Try to get into some freelance work if you have time to spare. Find out if there’s any way for you to earn from your hobbies and other things you’re good at. You can also try negotiating with your boss about increasing your salary, or working better to improve your chances of getting promoted.

Sources: Forbes, Learnvest

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