A few months back, NEDA drew the ire of the Filipino public when it stated that a family of 5 members can survive on a budget of 10,000 pesos a month.
And while they tried to clarify that it was simply a hypothetical figure meant to show how a monthly budget of 10,000 pesos will be affected by inflation (which was still at 4.6% back then), a lot of people were offended and took to social media and made the following remarks:
I wonder what NEDA’s recommended budget will be for the upcoming Christmas season?
NEDA issues aside, this article will show you actionable tips to help you budget your money. I hope you find these useful, especially during the upcoming holidays.
What is a budget?
It’s a spending plan. A “framework” to guide you on how money should be spent on a particular project, item, or time frame.
Your family’s monthly budget, for example, allows you to allocate your cash according to your monthly expenses.
A travel budget, on the other hand, accomplishes the same goal but is meant for funding your trip and how much to spend for each entry in the itinerary.
Why is it important to budget your monthly expenses?
It ensures that all important expenses will be paid for.
Through budgeting, you make sure all essentials and non-essential expenditures will be covered.
What is Discretionary and Non-Discretionary spending?
Let’s keep things simple:
Non-Discretionary spending refers to paying for essentials like food, housing, medicine, and educational expenses. In short, absolute must-haves.
Discretionary spending refers to paying for stuff that we can technically live without but still consider important. Gadgets, travel, dining out, watching movies, trips to the mall, are some examples.
Don’t let the title intimidate you. A budget worksheet is merely a record of your monthly income and expenses. It can be as simple as a 3-column table. However, as basic as it may seem, using it has plenty of benefits.
Here’s a sample worksheet from Randell Tiongson’s book – No Nonsense Personal Finance:
SAMPLE MONTHLY CASH FLOW
|Mobile Phone Bills||P1,500.00|
|Spa / Salon||P2,000.00|
It will give you an idea of how much you’re really spending on a recurring basis. Help you plan your expenditures, making sure you’re not short on money and go into debt.
Think of it as a tool for helping you cover your monthly expenses and financial goals.
15 Budgeting Tips
Here are 15 practical tips for budgeting your money.
1. Cultivate the right mindset
I’ve mentioned above that it’s not the method that counts, it’s the habit.
Before you can turn budgeting into a habit though, you have to employ the right mindset so you won’t end up losing momentum in the long run.
And it’s not as complicated as you think. The right mindset on this case simply means looking at budgeting as a tool to manage your money and not as a task that feels like a burden.
A simple switch in this outlook will enable you to sustain the activity and turn it into a habit.
2. Pay Yourself First
It is said that some of the most powerful individuals today owe their success to one change they made in their lives: They chose to pay themselves first.
It means keeping a portion of your earnings for yourself before you start budgeting the money. No matter how little your income might be, you should try to save at least 10% for yourself.
What will you do with the 10%? You can save it up for an emergency fund, use it for buying books and courses to improve and learn new skills, use it for building assets via investments like stocks, mutual funds, UITF, or funding your online business.
In the book, “The Richest Man in Babylon”, paying yourself first is crucial if you want to build wealth. You can’t simply start accumulating assets if all of it goes into paying bills and debt.
“But I can’t save, I don’t even have enough to begin with!”, you might say.
Try it first. You’ll be surprised when you realize that you still have enough even after keeping some for yourself. How could this happen?
Here’s the answer: This act forces you to be disciplined in spending your money.
Here’s a scenario. Say you want to open a mutual fund account. It costs 5,000 minimum.
You get 10,000 pesos each paycheck (bi-monthly). You decide to keep 500 each time and then budget the remaining 9,500.
Will you really miss the Php 500 every 15 days?
Unless you’re really cash-strapped, I don’t think you would. Often, this Php 500 will simply get spent without you knowing where it went.
Why does this happen? Simple. Because the Php 500 is “there”. It’s available for you to spend.
So you end up buying that powerbank in Lazada, “because it’s on flash sale”. Or eating out during the weekend because you scored a voucher.
While these are valid ways to spend your money (it’s yours after all), the point is, we usually spend the money we have simply because we can. And this can work against us if we’re trying to stick to a budget.
A great principle to follow in managing your money:
- Step 1: Save
- Step 2: Invest
- Step 3: Spend
3. Create a Budget Worksheet
One of the easiest ways to get you started on budgeting is to create a budget worksheet. Using the examples we showed earlier, start by listing down your monthly income and expenses.
The goal is to determine which items cost you money and exactly how much.
After running it for a month or two, you’ll get a good idea on how much things actually cost and be able to budget accordingly.
Here’s a quick sample from one of our editors (supporting a family of four):
4. Break down expenses into Discretionary and Non-discretionary
The first thing you need to do in the worksheet is to separate Discretionary and Non-discretionary expenses.
The goal is to identify which Discretionary expenses are causing some of your budgeting leaks.
It will vary from one person to another, but usually, it’s here where you can make the adjustment and save more money.
5. Be Realistic
Remember, budgeting does not need to be a ruthless cost-cutting activity. Forget those episodes of “Extreme Cheapskates”.
It’s not like that at all. Being smart about your money is different from being a cheapskate.
So shed all those negative beliefs about budgeting and think of it as a tool that helps you save money, not a dogma that determines how you should spend it.
When you budget, try to provide some buffer for the actual cost. More importantly, try to be accurate and honest about the items you list down on your budget.
The more transparent you are in using it, the more value you can get out of it.
6. Try the 50/20/30 Plan
This is a formula for allocating your income. The rule states that 50% of your income goes to the essentials or non-discretionary stuff like food, housing, education, etc.
The 30% goes to wants or discretionary expenses.
The last 20% goes to savings. Simple yet effective.
What’s great about it is that it takes discretionary expenses into consideration, which means you still get to spend items on stuff that you enjoy.
7. Track your spending
“What gets measured, gets managed”, says one popular productivity quote. Just like measuring something, tracking is the first step to laying down the details of your monthly expenses.
Try this: Whenever you’re shopping for grocery items, list down the price of each item before putting it on your cart.
Use your phone’s notepad app (or a dedicated program) to do this. Or you can go old school and write them down using pen and paper.
By doing this, you are able to get the necessary data for your budgeting.
This enables you to make near-accurate estimates. Also, it lets you be more conscious and mindful of your expenses.
You’ll realize that those daily lattes from Starbucks, for example, is costing you thousands of pesos a month.
Not that it’s a bad thing, but it goes to show you how effective tracking can be if your goal is to be more conscious of your spending.
8. Use apps and tools
It’s not about being the most feature-packed. It’s about choosing the one that matches your style.
And of course, worksheets like the ones we provided above works as well.
9. Make discretionary spending hard
In his book, Atomic Habits, James Clear shares that the key to breaking bad habits is “increasing the friction” between you and the action that you want to break.
For example, if you want to make sure you sleep by 10PM, install a cheap power trigger (I forgot what’s it’s called) that automatically cuts off the power to your router, shutting off the internet (no more Netflix and social media).
Sure, you can get up and turn it on again. If you’re not feeling lazy that is.
The point is that you’ve made it more difficult to continue using the internet.
That barrier you created (the need to stand up and turn the router on again) helps you fulfill your goal of going to sleep by 10 PM.
When it comes to discretionary spending, I give myself the “1-month rule”.
If it’s a big purchase (e.g laptop, new phone, etc.,) I let the idea sit for a month. If 1-month passes and I still want it, I go ahead and buy it.
My reasoning behind it is simple. I want to prevent any “spur of the moment” purchases. If it’s not expensive, perhaps a day or two of waiting will suffice.
Sometimes we think we need something really bad, only to realize a few days later that it was probably just a surge of dopamine in your brain (“That new iPhone looks so sexy! I want it!”).
I know some people who open bank accounts but forego the ATM card option.
They say it makes spending their savings harder since they have to physically visit the bank if they want to make a withdrawal.
10. Make the process of saving easy
I can attest to the effectivity of this one. Saving money became much easier after employing the use of certain strategies envelope method, apps, and online services.
Before, I had to go and physically deposit cash at the bank. Most days I’m either too busy or sometimes just plain lazy.
I end up not depositing the money and which leads to it being spent for discretionary expense since it just sits there at home, available (goes back to our “Pay yourself first” explanation).
Think of ways to increase the likelihood of sticking to your budgeting routine. The next tip, for example, is one that I recommend.
Read Next: How to Save More Money [Ultimate Guide]
11. Use cashless payment methods
These online payment systems take convenience to new levels.
Why waste 30 minutes standing in line just to pay your credit card bill when you can do it at the comfort of your own home within seconds?
Saves you time, money, and effort. It also makes saving and taking care of payables easy, which helps in turning it into a habit.
12. Create an Emergency Fund
Part of a good budgeting plan should involve some sort of emergency fund. It will act as a safety net should the unfortunate financial issue arise.
For example, if the breadwinner loses his or her job or there are some unexpected medical expenses, an emergency fund will give you that cushion to minimize the impact on your family.
The 50-30-20 rule will be effective in this case since 20 percent will be allocated to savings.
Perhaps you can save a portion of that for building an emergency fund.
Or better yet, take out the 10 percent from your discretionary spending budget at least until you build up a decent emergency fund.
13. Improve your Cashflow (Get a side hustle)
I know–it’s not exactly a budgeting tip. But I think this one deserves a spot in our list because income-generation is a huge part of budgeting.
Think about it–if you and your family don’t have sufficient income on a monthly basis, no amount of budgeting will help. It will always fall short. No worksheet or app will improve the situation.
It may sound too much of a hassle, but this works surprisingly well for a lot of people.
In fact, I did it years ago.
articles for 2-3 hours during weekends for a few extra thousand pesos not only helped me financially, but it also helped develop my writing skills which allowed me to turn it into a full-time, work-from-home job.
14. Less but better
There’s this video I saw on Facebook (you’ve probably seen it too) entitled “Why I Don’t Buy Things”.
It’s an extreme example of a decision-making process when buying stuff. And while the guy’s “Mountain Test” philosophy is clearly not for anyone, it’s the logic behind it that makes it worth considering.
The lesson is, let’s try to be more mindful of the things we purchase.
On the video he explains, “There’s a lot of things that we don’t need to have whether living on top of a mountain or inside a house or really anywhere in our lives. The fewer objects we have in our lives, the closer we will be to reaching the peak of freedom.”
Reminds of me of that Fight Club quote, “The things you own end up owning you”. I guess that’s the “Freedom” that the guy in the video is talking about. Should we sell all our stuff and live like a monk?
But we should definitely try to be more mindful of our purchases.
As best-selling minimalism author Marie Kondo recommends, ask yourself if the item will “spark joy” in your heart. In more practical terms, I’d just ask myself, “Do I really need this now?”.
Important: One of the keys to getting rich is living a simple life (live below your means).
15. Review your budget and revisit goals
On a regular basis (monthly, quarterly, annual), review your worksheet.
A periodic review will help assess if your budget remains effective in your current situation. We know that our circumstances change and our needs will vary at different periods in our lives.
Through constant re-evaluation, we can iron out any kinks brought about by changes and apply a fix to make sure everything is accounted for.
I hope you find these 15 budgeting tips useful.
The key takeaway from all of this? Let’s all try to be better at handling our finances. There’s no better time than now to be financially responsible.
With all these news of inflation and rising prices for basic commodities, we should look for ways to make our daily living more bearable.