Increasing household savings is a key part of Vision 2030 and the first step towards saving more is better budgeting. Budgeting is about knowing where your money is going and making sure you are in control of it. It is a roadmap to make sure you are getting the most out of your money and have the right balance between spending and saving. Here is how to budget in 5 steps.
Creating a Quick and Easy Budget in 5 Steps
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Steps
Step 1: Calculate Your Monthly Income
Step 2: Categorize your Expenses between Needs and Wants
Step 3: Adjust Your Spending to Meet the 50 / 30 / 20 Target
Step 4: Set-up an Emergency Fund and Allocate Your Savings
Step 5: Track Your Progress
Step 1: Calculate Your Monthly Income
For most, your monthly income will be the salary that you receive in your bank account every month. However if you have other sources of income such as [freelance work] or [property] then make sure you include this.
Step 2: Categorize your Expenses between Needs and Wants
Needs are anything that is essential such as rent, food, utility bills, [insurance], and minimum debt payment. Wants are anything that you can cut back on and still survive such as eating out, entertainment subscriptions and holidays.
Categorize your expenses over the last 12 months as either a need or a want and then work out the average monthly spend for each (e.g. total spent on wants / 12 = average monthly spend on wants).
Step 3: Adjust Your Spending to Meet the 50 / 30 / 20 Target
50/30/20 target is a simple rule of thumb on how your income should be broken down:
50% of your Income should be used on needs
30% of your Income should be used on wants
20% of your Income should be saved
This is just a guide but if you are spending more than 30% of your income on wants, you may want to cut back. If you are spending more than 50% of your income on needs, consider ways to [boost your income]. If you are saving more than 20% of your income then great, this will help you to build your wealth faster!
Step 4: Set-up an Emergency Fund and Allocate Your Savings
An emergency fund is a sum of money set aside specifically for unexpected expenses such as medical bills, car repairs, or job loss. Usually you want to save 3 to 6 months of essential spending as your emergency funds. This should be put into a flexible savings account that allows you to earn some profit rate but can be accessed easily.
The remainder of your savings can be allocated towards different goals such as saving for retirement or saving for other goals such as a house or a car. You may also want to allocate some of your savings towards [setting up an investment portfolio].
Step 5: Track Your Progress
Regularly check your expenses to make sure you are meeting the 50/30/20 target. If your income increases, challenge yourself to save more and regularly review your savings to make sure you are getting the best profit rate.
MyMal Hero’s View
Budgeting gives you more control over your spending, helps you to understand your financial position and helps you to stay focused on saving, which is the key to becoming wealthy. Have a go at these 5 steps and soon budgeting will become second nature and help you take more control over your money.
What's Next?
Now that you have got your budget sorted, start looking at Different Saving Account Options
You might want to consider investing some of your savings into stocks. See our guide to Investing into Stocks
Thinking about applying for a new job to boost your income? Check out 9 Tips to Get the Job that you Love
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