By Elmads

Budgeting was originally used in England as a means of controlling government expenditures. Since then, budgeting has been practiced not just by the governments, but also companies in order to manage and improve their financial allocation. This is all for the purpose of good money management and to reduce the risk of spending money into least priority endeavours, projects, and innovations.

As time passes by, budgeting has also been applied into individual lives. People learning how to allocate money into their most important aspects of their life like food, water, shelter, and electricity. Unfortunately, not everyone does it despite the massive benefits it could give them.

In a 2018 survey conducted in the US, which they asked 1,500 random people, if they knew how much they spent the previous month. 65% of the persons asked said that they do not know how much they spent last month, most of those 65% are the younger generations (Millennials and Gen Z), while 1/3 of Americans said that they should have not spent that money last month.

Others may feel that budgeting is not essential at all, thus a large number of people overspending their money every after pay day. A sad reality that is happening worldwide.

Nevertheless, turning a blind eye on budgeting money, regardless if we have enough income or are barely making ends meet, is not the wisest financial decisions that a person could take.

Living paycheck to paycheck

I’ll be real here, I know there are people who are on a tight financial spot. These are the persons who have a small amount of salary with large financial responsibilities to their families.

Does budgeting still apply with this kind of situation? Absolutely, they are the ones who actually needs it more. On how to learn and practice budgeting based on their own personal aims. You know what’s the only hard part for persons who has this kind of financial situation? luxury will not be not be an option. They can probably have some at times, but when you’re in position of an almost financially broke life, you do not have any other options but to find ways to increase or add more income, and being strategic on allocating you’re income.

The things that needs to be considered when budgeting money with this kind of situation;

1. The salary of the people who are in this kind of financial situation mostly, if not all, goes to living expenses. Breaking down each expenses is very important, by doing so they will be able to identify if a lot of it are really essential or not. For example, people include vices (alcohol and cigarette) as an essential expense, when in fact it is not. Harsh but true, because essential expenses are the ones sustaining our life. Without it, we will not be able to work, think, move, breath and be living in this world anymore.          
   
   I do understand that mental health is also crucial, but that is in the higher levels of our needs. What needs? Our Maslow’s Hierarchy of Needs, I’ve made a blog about this relating to money titled The Motivation of Life and Money Management.
   
2. Removing non-essential and unhealthy food are also helpful to lessen our expenses for our basic food money allocation. I do understand that at time to time we need enjoy ourselves with eating the food that gives us comfort and enjoyment, but purchasing a lot of it in the expense of sacrificing money for the essential food is not a wise decision at all. At the end of the day, the food that gives us proper nutrition, energy and good health to our body, is the most important food expense in our lives. The healthier we eat and live, the longer we can live our lives, and enjoy it at the same time.
   
3. As much as possible, always cook your own meals. Eating out is expensive for most of the time, especially when compared to cooking food at home. I know it is tiring to cook food everyday but when you’re finances are at a pickle, this will be an economical path to reduce your expenses. Remember, takeaways will always be expensive because you don’t just pay for the food, you also pay for the services of making that food and its delivery (if its for home delivery).
   
4. Choosing to use public transport rather than purchasing a car. Again when you’re broke there is no other choice but to take the most financially cheapest but physically tiring option. Take note, there are people who even prefer to just walk, is that too much? it can, depending on the situation, but for a motivated person who wants to achieve their own financial dreams, it is not.
   
5. Say no to extra expenses, what is important is to prioritize your needs first. Luxury comes after when we have achieved a stable cash flow and completed our wealth protection funds (Emergency Fund and Life/Health Insurance).
   
6. Always pay off your debt immediately (if you have one) except for mortgage loans , and save for an emergency fund.
   
7. Investing is not an option YET, saving money for the mythical 3 of the protection funds is always the priority. After finding the most efficient way to budget your money for the essential expenses. Keep on saving money worth 3-6 months of your basic expenses as emergency fund, then have a life insurance and medical insurance.
   
   Financial stability and safety will always be the most important aspects of our financial lives. Multiplying wealth will never be an option if our financial foundations are not strong and sturdy. A house standing on a fault line, even if it was built with the strongest materials, will always crumble down when an earthquake occurs.

Living with Good Income (Prioritization)

The edge with budgeting money with a good income that gives us extra money even after we are able to pay our basic needs expenses, is that we’ll have a variety of choices where we could allocate our extra money.

These people will always have extra money after paying for their essential expenses, which they can allocate to other financial buckets in their lives, that has a corresponding financial goal. For example, savings bucket for investments, travel, personal expenses, home down-payment deposit, car purchases and others more.

The only problem here is that some people who have extra income, after paying their basic needs expenses, goes to things that are not needed at all, the unused stuff that collects dust in their homes. This is the reason why minimalism mindset is an enticing philosophy, where memories and happiness are not found on material things, but on ourselves. Most of the items bought by some individuals were just used once or twice then that’s it, not to mention the money used just to buy those material things, which could have been spent on endeavours and goals that give them real fulfilment and joy.

Again I do understand that we need to enjoy life and spend on things that will make us happy, but spending on things that we think will make us happy is substantially different from the things that will make us truly happy and fulfilled. Most of the those things are always related to our future goals and dreams, which will take a long time, will need a lot of effort, discipline and hard-work in our part. For instance, enjoying to travel with family to have good memories with them, while still having the proper emergency fund to cushion if problem occurs, good health with proper food nutrition and exercise, raising kids and making sure that they will be able to have the best possible education we can give them, having a house without being into so much debt and a lot more. All of those are related to money, without the proper behaviour and mindset, we will just be always having debts atop of another debt just to finance ourselves into reaching our aspirations. When in fact, we could save and invest money by prioritizing our each and every wants and needs. We could ask ourselves the question, which one will truly give us the best possible experience, joy and fulfilment?

Things which will not bring us forth to our own dreams are not needed at all, we could enjoy it, but it should never hinder us to attain what is truly important for ourselves.

Can you imagine not saving a single dime of your money for a month, a year, or a decade? People actually do this. They have the capacity to save but they don’t do it. They have the opportunity of making money and multiplying money but they don’t maximize it. And most of all, they are blessed with a good source of income and the potential to make their income into a larger amount of money to achieve what they truly dream for themselves and their family’s future. Yet, they choose the now without even leaving anything for the later.

Prioritization is key, always have a talk with yourself and your family. Ask yourself what is the most important things in your life that you truly want to attain, it doesn’t matter if it is big or not, as long as it has to be yours. Is it seeing your child to have a good life your most important dream moving forward? then start saving money for your child’s education plus always support them in things that they love, while imparting your own principles to them. Is seeing your family happy and safe your most treasured gift today and tomorrow? then make sure you have the emergency fund, insurance and a good source of income. Is getting out of debt your goal, then never stop paying it up until you get out of that mud.

Basic expenses will always be our first and top expense, make sure that it is really a necessity, don’t justify the unjustifiable. There are a lot of not needed expenses in our life, that we could remove to ease the financial pressure into paying stuff that is not important. Every penny saved is a penny earned.

Practice the Zero Based Budgeting strategy if you already have your own priorities. Why? that is because you will focus the bulk of your money in allocating it in your top three financial priorities. Once you have achieved your own top 3, then you could rearrange it and save money now for your 4^th priority.

For instance, I myself prioritize Bucket for investments, emergency fund and family’s enjoyment fund. Once I reach my own personal goal amount for the emergency fund, then I’ll focus next on my 4^th priority.

Our priorities change as time passes by, that is why we always need to rearrange and review our goals for the short, medium and long-term time horizon.

To learn more about zero based budgeting step by step process. See my blog titled “Budgeting Strategies for Everyone”.

Living with Good Income (YOLOing Forever)

Most people misinterpret budgeting, it is not purely about delayed gratification, it is about prioritization. Budgeting gives us the freedom to enjoy life, not just today, but for eternity. I know you’ll be wondering how is that possible when our resources are limited? it becomes possible when we have the humility to accept and understand ourselves and our family’s needs.

Being aware that you produce a certain amount of money, and these are your personal financial aspirations, while this is your family’s goals. Sure we have a lot of endeavours we want to achieve and do, but we can learn how to narrow it down. Is my family happy with going outside and have a movie and dinner night out once a month? or do they prefer to travel to different places 2-4 times a year, rather than doing movie and dinner night outs? Do we want a house immediately or do we first need a car? and what’s our specific reasoning behind it. Small stuff but very helpful, because we learn that, sure we have tight resources, but that doesn’t mean that we’re limited to our enjoyment and happiness. We just need to have the humility to accept, what we cannot do today and prioritize what we need and can do. And enjoy the present journey with the people who really bring the intrinsic value to our lives.

To sum it up

Prioritization and budgeting are always hand in hand in personal finance. It is certainly hard to plan when we do not know what we treasure in our life, or our goals in the future. Nonetheless, I understand that not everyone will have the same timeframe to find what they really want, but that mustn’t stop them from budgeting their hard-earned money. This is the reason why I am a proponent of the 50/30/20 budgeting strategy. At the least, you still have a budgeting strategy to follow even if you are not motivated yet, and most importantly you are still saving money even if you do not know what will it be it for at this moment. You’ll never know, you might eventually need that saved or invested money after a few years. Just like what one of the greatest philosophers had said;

“Money is a guarantee that we may have what we want in the future. Though we need nothing at the moment it insures the possibility satisfying a new desire when it arises.”

-Aristotle

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.