What is the Best Budgeting Technique?
Until you can show that you can handle what you’ve got, you won’t get any more. The habit of managing your money is more important than the amount. – T. Harv Eker
One of the most important things that most financial educators would say is that you should never forget to save. But in order to save, you must first know what you have, what you owe and your expenses. A cash flow statement that shows what comes in and out of your pocket will then be important to help you realize if there is something to manage or budget.
We asked some people about how they manage their money and let’s see what we could get from here:
My comment here:
To her number 1 answer:
The 52-week challenge is a saving challenge where in you have to set aside a certain amount of money every week. The amount of money that you will save progress as the week passes by. Below is an illustration. Every week you need to add an additional P50 to your savings.
It might be quite easy and simple at first but if you’ll add up the money you are contributing every month, it becomes too large that you might not FINISH it. For example, look at September 3-September 30, that’s P7500 pesos for that month. If you are a minimum wage earner, this might be too costly for you. On the other hand, if you are earning enough, you’ll never know if some emergencies might happen during those weeks.
Recommendation: Just save an amount that you are comfortable with and that you could CONSISTENTLY set aside. The secret here is creating the HABIT first.
To her number 2 answer:
Giving your share to your parents is a generous thing to do. But as an individual who will be having your own responsibility soon, your parents should not demand money from you and you should not give too unless you are financially stable already. Here’s an excerpt where parents and children could learn from the book of Thomas Stanley, “The Millionaire Next Door:”
Once again, Dr. North (parent) said it best: I have set up trusts for my children … some estate tax advantages. But my plan will not distribute money to my children until they are forty years of age or older. Because in this way my money will have little effect on their way of life at that age. They will have already adopted their own lifestyle.
Cash gives them too many options, … especially in the case of young children. Media, especially TV, controls the values of our young. Just like they try to control what we think is funny with canned laughter…. [There’s] too much emphasis on consumption. I have never just given cash for this reason. What I have always told my children [is] if you need to make a major purchase, you first must fund a good bit of it yourself.
Recommendation: While you are still young, educate yourself and stop being dependent on your parents. Not all of us came from a rich family, educate your parents or family members if you must. We should learn to be independent, stop looking at our parents as emergency funds. Parents should also stop treating their children as retirement funds.
To her number 4 answer: She said, whatever is left might go to her savings or she might buy something out from it.
The problem here is, seeing all her answers above were quite okay, but it became inconsistent in her fourth answer. She said, she’ll save what is LEFT or she will buy something that she wants. Many millennials are like these nowadays, they seem to know the RIGHT thing to do at first but ends up spending their money on things they want. Easier said than done. They all have their priorities in life all mixed up.
Recommendation: Be certain of your financial goal. Know your priorities first. If you know what you are saving for, it will not be hard. Writing a goal will push you to save first before spending. And if you’ll spend, it is not because you want it but because you need it. And if ever that you want it, you’ll never be guilty about it because you have it all planned from the start. Right? So make up your mind, know what you want and stick with that!
One the most used budgeting techniques is setting aside a certain percentage of your money for a purpose just like what was said here. The problem is that, how do you really monitor if you are really setting aside those percentages? Do you really do it religiously? If yes, good for you. However, this kind of technique doesn’t apply to all. It might also be different if you are still single or married or if you believe in tithing or not. Some might have a jar for self-improvement or education, some might have a jar for travel while some might not have any of those.
Recommendation: Saving jars are okay only if you could really MONITOR it and only if you follow the PERCENTAGES you set aside. The best way to know the exact percentages you allocated is by looking at your income tax return against your savings for that year and your expenses. That way, you will know how much were really saved and spent. From there, you’ll know the percentage saved and spent. Before making these jars, I advise you to list down your expenses first. You’ll never know, it might just form 50% of your income or it might just be 20%. Then from there, you could adjust your percentage. That’s more realistic and an honest assessment before doing any allocation.
What I liked about these two posts is that both are correct answers but the other one included the word “forced.” The question posted here is really about how to manage our money and saving in fact, is really the most essential part. But saving alone is not enough, you have to really do it. You must force yourself. In short, you must be COMMITTED and you must do it in a way that it would just be AUTOMATIC so that there’s no way you could spend it anymore before you receive it!
Recommendation: Set up an automatic savings plan (auto-pilot mode) that would get a certain amount of money from your savings just before you could withdraw it. Many banks offer this kind of facility. Some companies have cooperatives that do the same. Other insurance companies as well as investment companies also have auto-debit facility that will help you invest your money right away on the day you received your salary.
Listing down what you earn is great. Remember to never forget to update your income once you get promoted or once your income increases or you have additional income source.
Recommendation: Listing down your income is great. But listing down your expenses is more important. So grab a piece of paper and start listing all your expenses. You might also want to keep all your receipts to help you remember your expenses for the day. Expenses show you where your money is going. Where it go shows a lot of the things that you are prioritizing at the moment. Make sure it is aligned with your financial goals.
One unique Filipino culture that we have is this. The husband gives the ATM to his wife and the wife will be the one to manage his money. Well this might seem okay because you respect each other that you trust your wife that she will handle your money well. However, the problem with this is that, as married couples, both of you and not just your wife should learn how to manage your money well. Gone are the days also that only men are working since now, we all see couples working together hand in hand.
Recommendation: As married individuals, both of you should learn how to manage your money well. While it’s good to let your wife handle your finances or the other way around, it’s better if you talk about it as a couple. It’s like you are both accountable with each other. There’s also a maker-checker just to make sure that everything is aligned with your goals. Being partners in reviewing your finances will also safeguard you from risks of any undisclosed expense. There is trust but it’s better if both of you are looking at it as transparent as possible. As married couples, your income will be one so do not forget to talk about the distribution of expenses when it comes to your family. This might be hard at first but if you love each other, you know that what is hers is yours and vice versa.
So now we have an extreme answer here. If budgeting is not a suggestion then maybe this answer should not belong here. Some say, budgeting may not be really necessary only if you have a LOT of money to cover for your future expenses that listing down where your money is going will not be important anymore. But then again even millionaire or billionaires have accountants or bookkeepers to make sure everything is under control. So budgeting is really important if you’ll ask me regardless of how will you do it.
Final words:
What’s the best budgeting tip? Actually NONE. The best budgeting tip is the one that is MOST EFFECTIVE for you. The one that is REALISTIC. The one that you will be COMMITTED to in doing.
Just like in investing, there’s no one size fits all strategy on how will you manage your money well. Maybe I’ll just leave you with these words:
If you think your money is not enough, then live below your means or earn more. The worst thing that could happen to you is to fall into debt. Just make sure that your expenses are well taken cared of. Lastly, managing your money afterall is just really about one thing and that is DISCIPLINE.
Hope you learned a lot from this! I am not a finance guru but what I recommend are exactly the same things I do in my life now.
P.S. The comments that were posted are from true persons. Their names are not showed for privacy matters. Thank you for sharing your ideas. I’m sure many people learned a lot from these different answers.
Leave a comment below and share your thoughts.
I would love to hear from YOU. =)
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