How To Start Budgeting | Fix and Maintain Your Budget in Singapore
Budgeting | Lifestyleby Priyadarshini 10 July 2023
It’s never easy to figure out how to budget, especially when we’ve just received our first income. Where do we begin with so many needs and desires to consider? The problem of “how to start budgeting” as part of the adulting milestone is undoubtedly familiar to the majority of 20-somethings out there.
When you have a disposable income from your job, it’s easy to become confused about the difference between essentials and luxuries. Because categorizing our spending is a subjective process, we may misunderstand a ‘desire’ and mistake it for a ‘need.’
How To Start Budgeting?
Differentiating between wants and necessities
First and foremost, prior to budgeting, we must distinguish between needs and desires. Needs are non-negotiable or permanent expenses required for one’s existence and well-being. Wants, on the other hand, are negotiable and changeable expenses spent on non-essentials and luxuries.
Wants are influenced by one’s lifestyle, whereas needs are influenced by one’s lifestyle. As a result, prioritizing your requirements should come before considering or attempting to afford any wants.
Chalk Out a Budget
Once we’ve determined what defines requirements and desires, we can begin categorizing them. This is where a budget sheet can help. The budgeting worksheet will essentially track and summarise two major components: income and expenses. Comparing the cost of requirements to your income flow is critical in determining how much financial leeway you’ll have.
The income column on a budget sheet refers to all of the sources of money that flow in each month, whether active or passive. Add all of these values together to get your total monthly income. Meanwhile, the expenses tab on a budget sheet keeps track of your monthly estimate and actual expense. This can be further broken down into necessary vs needless expenditures.
Mixing wants and needs
When the line between necessities and wants is clear, everything is good. But what happens when the line between the two becomes blurred? Mistaking some wants for needs is a typical error that many individuals fall into. Typically, such problems occur when we become habituated to certain desires and begin to perceive them as objects or experiences that we cannot live without.
Here are a few elements to examine in order to recognize and detect the difference more clearly:
- Expense duplication
- What you choose to spend your money on is important
Some expense overlaps may include both wants and needs in a single category. A common example would be internet service.
Your savings account will be your lifeline – How To Start Budgeting?
“You should always save for a rainy day,” as the saying goes. These statements resonate especially true in light of our epidemic situation over the last two years. Here are some clever methods for encouraging improved saving habits.
The 50/30/20 rule
The 50/30/20 budgeting guideline is a common approach to keep track of your expenditures and save money. This system serves as a guideline for working-class families to focus on the big picture, i.e. saving for retirement and unforeseen circumstances, while maintaining a decent standard of living.
- 50 percent = requirements
- 30 percent = desires
- 20% equates to savings and debt reduction
By allocating a specific percentage to your expense components, you can avoid overspending and/or acquiring more debt.
Target tracking entails keeping track of two of the greatest monthly expenses, such as food and hobbies. Once you’ve determined how much you spend each month on these two items, you’ll be able to gradually reduce your overall spending until it decreases by 10%.