Hello everyone! I began writing about (personal) financing when freelancing and realised that I didn’t actually have a standalone something written on budgeting. I speak about it briefly in my first post and well, I might be repeating a few things here so bear with me. 🐻
As always, while I am on a little streak of writing about MORE money, personal finance and women talking about it, I agree that money is a very personal and subjective topic. The topic of ‘money’ itself has caused problems at society at large and even in our own homes. Some of the money-related traumas of my childhood have kept me from getting a credit card to date and it took a long time for me to realise that debt is not in fact, bad. Also, to talk about money, savings and the importance of budgeting, I do acknowledge that I’m more privileged than most. If there is anyone who feels ‘bad’ for talking about money or the privilege you have, please consider giving back a percentage of your income on a regular basis. It doesn’t always even have to be to a big charity, you could probably first start close to home and see if anyone in your neighbourhood needs something or an (extended) family member.
And of course, I am not a financial expert.
So what is a budget?
I’m sure that we have all prepared a budget (not the annual readings) at some point in life. Even if it’s not for yourself, it might have been for some sort of an association you were in while in school or university, a budget for your wedding or even the planning a trip (I hope!). While I’m sure there are more refined definitions around what a budget is, for me, a budget is how I intend to spend my allocation of money.
While I do believe that a small, continuous practice like a budget can lead to bigger things like financial freedom, initially for me a budget was about a few things and I’m going to very briefly explain some of them:
- Track and manage my expenses
I did read something recently about how tracking expenses is not equivalent to managing one’s expenses or budgeting. And that’s completely true. Budgeting for me means that I am able to track what I spend and where I spend and also reallocate budget lines and spending categories accordingly.
- Set and meet financial goals
These goals could be from having a retirement account to a stash of cash locked away for an emergency.
- Plan for bigger things (that are not financial goals)
The actual fun that comes from ‘financial freedom’. These would be your trip to Europe to your Gucci handbag or a gaming computer.
- Have better control of my money
Once you start budgeting and tracking, you get a real deal of just how much banks actually take away from you. This doesn’t unfortunately translate to much here in Sri Lanka because we don’t have a lot of flexibility in terms of banking fees, charges at least in the traditional banking model. There are new FinTech related solutions that are coming up/already in place, which seem promising however.
How do you start a budget?
So for this, we are going to definition of budget = financial plan.
If you haven’t budgeted before, that is fine.
I think a lot of the times what keeps anyone away from topics like personal finance or talking about money is that we don’t know where to start. The internet can be too overwhelming and sometimes too much information is always not a good thing. Something I have personally also noticed is that for the established few in the system, they don’t seem to be too keen on letting newbies into the circle. Probably because their investments and interest rates will be saturated or they feel better about their ‘status’ and thinking lesser of others 🤷🏽♀️ It’s not everyone, but the few such people I have met are not very open to sharing their knowledge.
So, even before you open an excel, or an app or get a notepad and pen, I think it’s important to keep in mind that you can start to budget at any point in your (adult) life. If you are knee deep in debt, that might be a separate conversation but if not, it’s never too late to start budgeting (and saving!). So come with humility and be ready to learn.
I would like to quickly run through what I did when I started off, in case it would be helpful. I use a monthly budget format (some do quarterly, bi-annually, annually etc).
- When I started budgeting first in 2014, I started making spending allocations, eg:- LKR 15,000 a month for Friday nights and fun stuff. I used to be fun then. 😅
- I wasn’t very good with savings during this time, at least not long term savings.
- From this stage, I then moved towards tracking all my expenses. Like, everything (similar to how I do now but with lesser columns haha). Once I did it for about 03 months I identified my expenses, I then reallocated parts of my income into different spending categories. Around this time (I think 2018-early 2019) I also experimented with the cash-only method and carried around money in envelopes.
- Fast forward to what I do today, which hasn’t changed much since 2019, I have a rough idea of how much I would be expecting in income the following month. Then I have my pre-identified budget categories that I spoke of in my first post. Before I list them out, I think a good rule of thumb is to first focus on the bulk of priority payments (including savings) needed for a month, and then the bulk of any discretionary spending. Ideally, I think it’s great to do this before you get paid. So mine looks something like this:
- Money for extended family, donations/contributions
- Groceries, household expenses and eating out*
- Games, entertainment, shopping
*Even pre-pandemic, we didn’t eat out that often unless we met friends/went out to dinner etc. Still and even now, it would be about 4-8 times a month.
Do keep in mind that everyone has a different lifestyle and no two budgets will look alike. I think ‘budgeting’ get its bad rep from it being equalled to frugality, which it can be but it is not always the intention. Personally, I believe that a budget allows you to spend your money wisely in a way that puts you in control of what you spend.
So, having said all of this, and if you have never made a budget before and you still wouldn’t know where to start, I hope the following points would be helpful.
- If you have access to online banking, try to process your transactions for the past 01-03 months and take a look at it. Make note of anything interesting. I wouldn’t suggest getting statements from a bank unless you really have to because we don’t need to give banks more money of ours.
- If you don’t have access to bank statements, and cannot recall or identify expenses, take some time to write down a wish list of expenses, keeping in mind that it is only a wish list. Once you have that in front of you try to see if you could categorise the expenses into different baskets and then prioritise them – this could be in terms of the urgency of payments or other important payments that need to go out. Now try to place this against your monthly/regular income to see how best you would divide up your income.
At this point, we need to very quickly talk about income as well. If you have done accounts at any point in life, our schools taught us that income over expenditure would result in a surplus or a profit and the other way around would mean a deficit or a loss. I honestly believe that good budgeting practices will help reduce the chance of the latter occurring. This is also a good time for me to plug in my importance of savings, which I think seems to find itself into all of these posts.
Before I go, I also want to leave with one more thing: the importance of revisiting and revising your budget. I don’t think this should be done regularly because like with anything we want to build a habit out of it. But, I think budget revisions are in order when:
- We are looking at spending a larger stash of cash in future, such as a trip or a wedding, revising your existing budget might be helpful in achieving that goal.
- Accommodating economic inflation. Like it or not the cost of living goes up. This means my LKR 10-12,000 monthly travel allocation needs to go up to LKR 15,000 (well not now because we don’t travel but you get what I mean). Also this budget reallocation doesn’t always happen with an increase to an existing income either. So some corners might have to be cut.
- Being mindful of lifestyle inflation. This is the boost you give your lifestyle choices when you have an increase to your income. I personally don’t do it for myself and I’m not in a position to judge what the others do for themselves either. But it’s good to be mindful of this nevertheless especially if you have certain financial goals you want to fulfil.
And as a general rule of thumb reading the news and being aware of what’s happening in the country that would potentially affect the economy or even your job, is also a good habit to put in place.
Apologise that this went on for longer that I had hoped. These are things I’ve learnt along the way from reading, watching and questioning – so while some of this might sound repetitive, I hope it was helpful.
If you have any feedback, comments on this post or suggestions for me to write something else on this comment, please do let me know and I will try my best to accommodate.
Thanks so much for reading it really does mean a lot.