The first step in money management is to decide how much you can spend. This is relatively easy – until you realize that the money gets spent “somehow”. To avoid this “somehow” and to actually lower your spending, the most crucial thing is to prioritize.
Figure out which expenses are critical, which are essential, which are compulsory, which can be postponed and which are purely up to your own will. Here is a rough plan that you can use to categorize your expenses.
The most essential expenses for anyone are under the heads of food, clothing, health and shelter –
1. House related expenses – rent, repair, maintenance, association fees, utility bills
2. Medical or health-related expenses – insurance, average spending, fees for yoga or gym, food supplements
3. Food -include baby food as an essential, but look for substitutes for canned pet food, energy drinks or frozen meals
4. Clothing – warm clothes for winter, waterproof clothing for rainy areas and about five sets of summer clothing is all that you can count as “essential” for one person. Your budget may allow for more than this, though, especially if you frequent thrift stores and yard sales or circulate hand-me-downs among neighbors and family.
5. Personal care – switching to generic brands can drastically cut down spending on personal care items. For DIY enthusiasts, there are a lot of options readily available in the kitchen that can be used very economically for personal care and cosmetic needs.
6. Expenses incurred for earning an income – transportation and office lunches for office goers, and equipment or an Internet connection for workers at home. These allow a continued income, so being able to pay these is of paramount importance.
7. Professional fees – lawyers, accountants, debt counselors and so on.
Out of the essential expenses, some need to be paid annually, some quarterly, some monthly, perhaps some even weekly. In order to calculate how much to set aside every month for these, go by the following rule –
1. Divide annual expenses by 12
2. Divide quarterly expenses by 4
3. Keep monthly expenses as they are
4. Multiply weekly wages by 52 and then divide by 12, i.e. multiply weekly wages by 4.33.
A thumb rule that can help to stay prepared for emergencies is to set aside a month’s budget per annum. Always keep this amount handy in your savings account, and promptly take measures to replace it if it gets spent. DO NOT let your regular budget encroach into this amount no matter what happens.
One thing that people perpetually forget while budgeting is to allow some room for error. Allow a certain amount of money every month for non-essential expenses. Buying books, gifts, inexpensive jewelry or makeup, or even eating out once in a while can take away the stress of constantly watching the budget. If you will, it works like a reward system – save so much, enjoy a limited splurge later. By keeping yourself happier, you also end up healthier and less prone to binge eating, binge spending or such excesses. So definitely do not forget to put yourself on the list while preparing a budget for your household!
Tags: canned pet food, debt counselors, diy enthusiasts, energy drinks, maintenance association, office lunches, personal budget, rough plan, warm clothes, waterproof clothing