Friday, 5 February 2016

How to save money through budgeting


There is a secret psychology of money. Most people don't know about it. That's why most people never become financially successful.
A lack of money is not the problem; it is merely a symptom of what's going on inside of you.”
T. Harv Eker.

“It takes as much energy to wish as it does to plan.”
Eleanor Roosevelt.

From the last quote from Eleanor Roosevelt, you know that if you wish to save, you must know and must create the plan. You must budget. The budget is your plan.

What is budgeting?
Budgeting is knowing what your incomes are and knowing what your expenses are, for a given period.
And if you have fluctuating income, you know that you must save (budget for or plan for) future expenses, just in case you don’t generate sufficient income in the next periods.

Budget is normally written down - on a notepad or an excel spreadsheet - and on your personal calendar, as a reminder.
Writing down your budget will significantly help you to stick to your budget and achieve your financial goals.

“Reduce your plan to writing... The moment you complete this, you will have definitely given concrete form to the intangible desire.” Napoleon Hill


Why do you budget?
To manage your money, simply put.

What is money management?
It is managing your incoming money (salary, dividend, interest income, bonuses, allowances, gifts, etc) and your outgoing money (expenses), in order to achieve your financial goals, be it living under your means (debt free), paying off debt, saving for a car or for a holiday or for a wedding.

Money management also includes activities (amongst many others) that involves growing your money through investing in real estate, shares or stocks, bonds, and many others.

My grandparents always said “Manage your money before it manages you.”
Remember the quote above ... why most people never become financially successful. A lack of money is not the problem; it is merely a symptom of what's going on inside of you.”?  The financially unsuccessful … They are not good in managing their money.

Examples of good money management:
  • budgeting,
  • ensuring that your total expense is below your total income,
  • paying bills on time,
  • saving money, etc.

Examples of “Old money”style money management:
  • If you cannot pay it by cash, that means you cannot afford it. That means, buying anything (Car, wedding, travel, house, laptop) with cold hard cash.
  • Where to spend money:
    • Food that is healthy and nutritious
    • Clothes to look modest and appropriate, not flashy (no high end brand)
    • Investment (blue chip) in shares and real estate
    • Education (not just formal, but by buying books to improve yourself, by going good and useful seminars, by enrolling in short casual courses that you think might improve you further).
    • Socialization (you need your friends in life), not getting wasted in bar or going fine dining, but to be involved in activities that will strengthen your good and valuable friendships, and also to create more good friends so that you can improve yourself to be a better person.
    • Reward yourself. If you have done well, if you have achieved your goal, please reward yourself.
    • Nothing else.

How to budget?
First, Identify all of your incomes (salary, bonus, allowance, side incomes, dividend, interest income, etc).

Second, Identify all of your expenses. To make it easy, I listed almost all thinkable expenses on my budget planner.
It is impossible time consuming, if you try to identify all expenses, when your current expenses are out of whack - unorganized or disorderly.
What I did to be efficient and effective was: I decided to cut all unnecessary expenses such as takeaway lunches and coffees, unplanned mid week run to markets, memberships (cable, magazines, newspapers, gym), and shopping.
Once the unessentials are out of the picture, I can easily and quickly identify all expenses that I have.

Note, budgeting is a gradual process. It is hard but not impossible to get it perfect on the first try. You get better after each period (fortnight or month), as long as you spend time reviewing and improving yourself.

Without continual growth and progress, such words as improvement, achievement, and success have no meaning.
Benjamin Franklin



Finally, how to save money through budgeting?
One, By eliminating unnecessary expenses.
By this stage, you will know (really know know) all of your expenses and your income. You can then identify unnecessary expenses that you can eliminate.

These unnecessary expenses are expenses that give you nothing in return.

The forms of expenses will vary significantly from person to person. But how to identify them is: do I get something in return that is solid by spending the money?

For example:
My necessary expenses: $25/kg Salmon. It is healthy.
Unnecessary expenses: $1 tinned tuna. It is less healthy.

My necessary expenses: $3 snacks (it makes me genuinely happy). Unnecessary expenses: shopping, pedicure/manicure, going to the movies, travelling (they do not make me happy), going to watch footballs, hanging out at the bar or in cafe.

Two, By reducing your budget to only essential expenses - you are making your budget to be financially lean
In my case, my necessary expenses are the essentials, which are
  1. Food
I don’t buy takeaway lunches/dinner, unless I go out to network or socialize. So all food that I consume are bought from the market or supermarket.
I will also only buy what is necessary (Meat, seafood, vegetables and fruits), I will not buy lollies, chips or crisps, cookies, frozen food, etc.
  1. Health
Prescription medicine, necessary vitamins, etc.
  1. Shelter
Mortgage repayments, utilities, rates, repairs and maintenance, and insurance premium.
I will bargain those to the barest minimum, check out how here.
  1. Sanity
Something that makes me happy. Your budget will not work if you do not feel happy - if you feel suppressed.
If you love going pedicure or manicure or going to watch footballs, do it! Keep your sanity!
I love snackings, if I saw snacks I like on the street, I will buy them.
  1. Expenses to obtain income
This is, monthly train ticket, occasional networking expenses, occasional gift giftings to colleagues.
Lastly and most importantly, By sticking to your budget
“To accomplish great things,
we must not only act, but also dream;
not only plan, but also believe.”
Anatole France

I’m a great believer in luck,
and I find the harder I work the more I have of it.
Thomas Jefferson

Click here on how to stick to your budget.

So in summary
Through budgeting you identify all expenses. Through sorting them you eliminate all unnecessary expenses and become financially lean.
The gel, the last gel, is to actually stick to your budget.


A journey of a thousand miles must begin with a single step.
Lao Tzu

The future belongs to those who believe in the beauty of their dreams.
Eleanor Roosevelt.


©™ Kaizen Money Smartt
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