Since young, we’ve been told that it’s good to be frugal and to not overspend. Sacrificing bubble tea, opting for free workout plans on YouTube instead of buying a gym membership — these are just some small ways we try to keep within our budget on a day-to-day basis. Budgeting is not a new concept and if you already have a budgeting habit, that’s great! But beyond just keeping track of your finances, you’ll need to have the right mindset.
I’m not about to introduce a new budgeting formula or savings ratio. I’m sure you’ve come across these articles in the past. Instead, I’m here to share with you my 5-step process that goes beyond just mindlessly saving up. Budgeting is more than just a surface-level practice. To be rewarded with the fruits of your labour, you’ll need to dive deeper.
Here’s what I mean:
Have a clear purpose
Many of us know that saving up is a good practice but most of us don’t save or invest with a clear goal in mind. If you’ve read articles on personal finance in the past, you’ll be familiar with the 50/30/20 rule and many tips and tricks to increase your savings.
However, without a clear purpose, you might find yourself building up your savings for the sake of it. Soon, you’ll find that you have too much cash left stagnant in the bank. You don’t know what to do with your resources and you’re losing it to inflation. Some of us may even start to wonder, “What’s the point of saving up if I can’t treat myself a little?” Eventually, you might end up spending away your hard-earned savings because you didn’t have a specific goal for saving up in the first place.
Having a clear purpose for your funds will give you a better sense of direction for your financial journey. Whether you’re saving for your home, wedding, or children’s education, you’ll need to jot that down and save with a clear goal in mind.
Know your priorities
Listing down your goals isn’t enough — you’ll need to know how to prioritise. One mistake most of us make is saving up as much as possible for the many goals we have in mind. Trying to achieve all of them head on can be extremely tiring. It causes you to set high standards for yourself and you may find yourself feeling overwhelmed.
A great way to prioritise your financial goals is through creating a timeline. Note down which goals you’ll like to achieve in chronological order and the amount of time you have between now and then. This will give you an idea of how much you need to save or invest in a specific period of time.
Know your financial weaknesses
We all have our own weaknesses when it comes to our finances. It might be difficult to face our challenges but having a sense of self awareness is crucial. Perhaps you have a home loan or a car loan to pay off. Or perhaps you have insufficient emergency funds. Thinking about these challenges might cause you stress but instead of avoiding the loopholes you have in your finances, you’ll need to think of strategies to overcome them.
Have a clear plan
So what do you do after you’ve set your goals and priorities? Have a plan, of course! Many of us save without having a roadmap to tell us whether we are on track. Some of us might find having a detailed budgeting plan stressful but what’s more stressful is not truly knowing whether you’re on the right track in your finances.
Suppose you’re saving up for a home. Instead of just chalking up as much funds as you can in the bank, you should consider these questions:
- What kind of home am I saving for?
- How much does that cost?
- When do I want to attain this goal and how long do I have from now till then?
Based on these specific figures, you can set aside a sum you should save on a monthly basis. Besides saving up for the cost of your dream home, you should also include possible renovations costs, furnishing costs, and insurance plans that you’ll need to finance. This ties in to the first point about having a clear purpose and it’s important to be as specific as you can. Put yourself in the shoes of your future self — what will you expect from your new home and what will you need?
Having a plan will help you map out and think through your financial decisions. Being specific about the amount of funds you need to save in a month or year will help you move towards your life goals and turn your aspirations into reality.
When you’re coming up with your financial plan, be sure to ensure that every milestone is measurable and attainable. Come up with a plan which accounts for your daily expenditure and get into the details as much as possible. The more specific you are with your monthly and yearly saving goals, the better!
Review Your Plan
Yup — you’ll need to review your plan and make some changes along the way. It’s all part of the process. Don’t expect yourself to come up with the “perfect plan” right from the get go. Instead, be open to improving your budgeting plan on a regular basis through tracking your progress.
There isn’t a hard and fast rule on how often you should review your plan, but I’d recommend you assess your progress at least once a year. Look at your existing budgeting plan and see whether you’re allocating your resources well. Are you spending a little too much on coffee and Grab? Did you overestimate or underestimate your budget in certain aspects like entertainment or holidays? If you did, you’d want to make necessary adjustments to your plan so that it aligns with your goals and is also a good fit for your spending habits.
Knowing how to budget well is a skill. To take your budgeting to the next level, you’ll need to be honest with yourself, understand your priorities, and even be aware of your weaknesses. If that’s what you want for yourself, it’s important to go through this process with a financial advisor whom you can trust.
To find out more about my budgeting technique and how that can be tailored to your needs? Reach out and connect with me — I’d love to hear your story!