How to prepare an expense budgetChen Wan Lim
Whether you are a student, a home maker, an employee or a business owner, everyone needs an expense budget. An expense budget need not be complicated and it does not require accounting tools and software. All you need is to tailor your cash outflow to match your cash inflows. Creating an expense budget also allows you to be more in control of your personal finances. Here are some ways how you can prepare an expense budget:
Where is the money coming from?
Before you can think of where and what you are spending on, you will first need to identify your sources of income. For most of us, our money comes from the salaries we earn through employment and for business owners, the money comes from the profit the business makes. Other sources of income may be from stock dividends, rental income and freelance works. Record your income, regardless of whether it is regular or not but be careful not to overestimate your income. It is better to underestimate what you are able to earn monthly.
What is the money going towards?
Next, you will need to list down the expenses, especially the fix monthly expenses you have. This could be rental, mortgage, car loan, personal loan, food, clothing, transportation, fees etc. After you have clearly listed all of your fixed expenses, you can then start with the variable expenses such as clinic check-ups, car repairs, roof leaks and the occasional shopping splurge. Ideally, your expenses should be less than your income.
What is your end game?
Ask yourself, what is the purpose of having an expense budget in the first place? Perhaps it could be that you are trying to save money for a down payment for a house or it could be that you are trying to pay down a credit card debt. Whatever the reason may be, you will need to note why you are tracking and itemising your expenses. If you do not have one in particular, then it could just be that you are trying to maintain a good habit of structuring your personal finance and to be in better control of your money.
Now that you know how much money is coming in, roughly how much is going out monthly and what you are trying to achieve, it is time to make some adjustments to your budget. The easiest way is to sift through your variable expenses list and see what items you can do without. Perhaps you can cut down on your cinema trips or your late night ice cream runs. It is always easier to cut down on variable expenses as fixed expenses are fixed for a reason. Next, try thinking of ways you can increase your income. Perhaps asking for a raise abruptly on Monday is not a wise career move to do, but think of how else to increase your income. Try freelancing, stock trading or investing.
Make periodic adjustment
Once you have all of the above in place and in practice, you can make small adjustments every so often to optimise your expense budget. Review your cash inflow and outflow often to ensure that you are still on track to achieve your goals. Keeping track and making periodic adjustments to your budget can also give you a sense of how much more you will need to earn or how much more expenses you will need to scale back and these will help you in planning for your future.