Budgeting basics: Plan, follow and track your money

KUCHING: In financial planning, it is important to prepare a budget. Living according to a budget requires a lot of discipline but it helps you to live within your monthly income Keep aside money or savings.

To reach your financial goals, prepare for financial emergencies and develop good habits, it is important to budget with regular check-ups of your cash flow and net worth.

Prepare your budget at the beginning of the month or on the day when you receive your monthly salary.

When you prepare your personal budget, refer to your financial goals.

Compare your budget to your financial goals to see whether or not you are achieving them. For example, if you have targeted on putting a down-payment to buy a car in one year, make sure you do monthly checks to ensure you are keeping money for your financial goals.

Estimate your income for the budget period. This covers your salary, commissions, allowances and other sources of income.

Put aside at least 10 per cent of your income for your savings. If you can hit 20 to 30 per cent of your income as savings, it will be better because you are creating a bigger pool of money for your future retirement).

Put aside some money for your emergency fund.

Estimate fixed expenses for the budget period. These are expenses that must be paid or spent, and include house rental, loan instalment payments, credit card payments and insurance premiums.

Estimate variable expenses for the period. These cover items such as petrol, groceries, electricity, and water bills.

Estimate discret ionary expenses, such as for items that you can choose whether to spend or not to spend. They include gifts, hobbies, entertainment and holidays.

To prepare a successful budget, remember:

1. Be patient and disciplined. A good budget takes time and effort to prepare. Do not give up because you feel that there is too much to do!

2. Be realistic. If you have a moderate income, do not expect to save a lot of money in a short period.

3. Be f lexible. There will be unexpected expenses and changes in the prices of groceries and other items.

4. Revise your budget when needed.

5. Set aside an amount of money to enjoy yourself. You may want to have a night out with friends or to watch a movie.

Remember: a budget will work only if you follow it! Tracking your cash flow

Preparing your personal budget is not the end of the process. You need to monitor your actual expenditure every day, especially where your money is going. Another term used for this is managing cash flow – the actual inflow and outflow of cash during a given period.

Your most important inflow is probably your income from employment. You may, however, have other sources of income, such as a business income and interest earned on savings and investments. Outf lows would be living expenses, loan repayments and other financial commitments.

If you have a cash surplus, that is fantastic! Put the money away in your savings. However, if you have a cash deficit, take another look at your spending. Try postponing any purchases or payments for the time being. Try not to use your emergency fund unless it is absolutely necessary. Use your credit card as a last resort as using it will only add towards expenses for the coming months.

In preparing next month’s budget, base it on the balance brought forward from the previous month.

Make sure you review and revise both your budget and spending plan regularly. If you need to cut down your spending, look at expenses that you can do without. A good idea is to take a look at expenses involving food and entertainment. You may even have to revise your financial goals, if some of these are not realistic in relation to your monthly income.

Your budget tells you how much is your planned income, savings and spending to achieve your financial goals Your cash flow statement shows you what you received and spent in terms of cash over a period.

Next week, we will look at ways of living within your means.

The Credit Counselling and Debt Management Agency (AKPK) is an agency under Bank Negara Malaysia tasked to help individuals take control of their financial situation. For assistance, please contact AKPK’s Power Infoline at 03-26167766 or visit www.akpk.org.my.