A Novice's Way Towards Budgeting

Disclaimer: This article is based on the experiences of me, the writer, and is catered more towards students like me who want to start their saving journey.

INTRODUCTION:

As a university student and a young individual, it has been and still is difficult to control my spending habits. May it be towards food, certain things that I want to buy through online shopping, or the occasional micro-transaction that I would indulge myself in because of an in-game event that I just can’t resist being a part of.

These types of problems made it hard for me to finally start saving as I was often burdened by the constant urge to spend my allowance on unnecessary expenses because it made me happy. However, once I finally gathered the will to stop spending unnecessarily, it was one of the best things that I did to take control of my finances.

As an Accounting and Finance student, I thought that applying what I learned in my current degree to my own finances would prove to be beneficial since it would make it easier to not only track my monthly expenses but also to compare each total expense that I had accumulated each month to see if I had to reduce a certain cost for the following months.

But of course, before saving must come the planning, and thus, what this article is all about.

Budgeting.

Budgeting is an important first step in everyone’s journey toward financial control. The lack of a proper budgeting strategy will likely only result in a poor attempt towards saving which in the worst-case scenario, will make the saver stick to their old spending habits as it will be the easier thing for them to do.

Therefore, in this article, I will be explaining how I handled my budgeting when I first started saving so that it may hopefully become a guide to others who like me, want to control their spending so that they can make use of their money in a more meaningful way.

Here are the steps I took when I prepared my budget:

Step 1: List your Average Monthly Allowance

(or for non-students, your Monthly Income)

This includes everything that gives you Cash Inflows every month.

(ex. Weekly Allowance, Salaries)

All the Cash Inflows available should be averaged so that you will have a rough idea of how much money you will be handling each month.

Note:

Try to stick to the budget’s average for each month even if you project that you will be earning a higher income or will be getting an increase in allowance next month since this will limit your risk of unknowingly going over the budget and spending more than you should have.

Step 2: List all your Monthly Expenses with their average

monthly values

(Both Fixed and Variable Expenses)

This includes everything that you plan to and have spent money on previously.

Fixed Expenses Examples:

• Rent
• Electricity and Water (Utilities)
• Wi-Fi

Variable Expenses Examples:

• Clothing
• Food
• Travel
  All the expenses should be individually listed so that a more comprehensive view of the budget can be made.

Note:

For variable expenses that may not appear in your monthly spending

(ex., clothing, jewelry), their budgeted (forecasted) value in the first month can be 0. If there is such an expense the following month, that expense will be the budgeted value for the month after the next month.

Step 3: Create an Income Statement style document

(preferably in MS Excel)

A lot of people unfamiliar with the Accounting Industry may become confused or unfavorable towards this article because they don’t know how to make an Income Statement, however, allow me to explain why I deem an income statement necessary with my (and hopefully your) budgeting method.

Simply put, an Income Statement refers to a document that all companies are required to submit yearly to authorities so that such authorities know how much income, profits, expenses, taxes, etc., a company has for that year.

“How is this relevant to my budgeting plan?” you might ask. The income statement is relevant because this will be our template for the actual document that we will see when we finish budgeting and officially start the saving journey.

With the use of the income statement, you will see how much your budgeted (forecasted) monthly allowance/income and expenses are against your actual allowance/income and expenses so that you will see how different they are.

This will provide you with the knowledge of which expenses can/should be reduced in consideration for the next month.

Step 4: Start your Saving Journey!!

Budgeting may be a troublesome step that many starting savers may think is “skippable”, but in my opinion, a saving journey that lasts is a saving journey that has accompanying planning put into it. Because your budget will act as the basis for how much you can spend on each expense every month.

Tips:

• Make a copy of the sheet for each month before inputting values so that you will save time.

• After Inputting the “Actual” values for the current month, you can immediately put it under the next month’s “Budget (Forecast)” column by copying and pasting the values.

• If there are expenses that weren’t present in the previous month but were this month, you can put the cost under the expense column with a 0 budget (forecast) value for the next month's budgeted value and adjust the MS Excel formulas accordingly.

• After collecting data from your monthly expenses (preferably after 6 months and above), if you feel that you have stabilized your spending, you can finally change your budgeted (forecasted) values to the average values of each of your expenses so that you can have a more accurate comparison.

Writer’s Thoughts:

I tried to make it as simple and understandable as I could while also making sure that I didn’t create a subpar budgeting plan because I dislike reading tutorials that are just so difficult to understand. Hence, I made sure not to use too much jargon and “colorful words” so that it would hopefully be easily understandable by anyone who was to read my article.
If you made it this far, thank you for reading my article and I hope that I became helpful to your goal of taking control of your finances.

Click here to access the Budgeting Sample Template for reference of how the Income Statement would look like.

Feel free to Download the file for your convenience.

Definitions:

1. Micro-transactions – payments that happen online (usually inside an application) that involve a small amount of real money spent usually to unlock certain application features that would have been inaccessible without the real money payment.

2. Inflows – When money goes into your account

3. Fixed Expense – Expenses that have a fixed (unchanged) value regardless of what happens for a specific period.

4. Variable Expense – Expenses that have no fixed value and vary in amount depending on how often a specific expense is done.

5. Cash Loss – Includes reduction of cash that does not involve any spending.

ex.

• Money accidentally dropped in sewers and can’t be retrieved

• Getting scammed out of your money