For start, who do not have budget? 3 years ago, I would be one of those shy ones who would pick up my hands if anyone ask this question. Slow and resistively I started to do budget last 3 years, and I realized how amazing the budget have shape my life. It is not that hard at all, and the best thing, since it is "my" budget, so I got to do whatever I want with it.
My first tips to those who do not have budget, start by listing down the flow of all your money. The list should have a basic categories of income and expense. A low tech notepad and pen is good enough that you can carry it along with you all the time. I prefer to use the notepad application on my mobile phone to write down my money flow. Furthermore, my mobile phone follows me everywhere, right? Rather than use phone to accept call and sms only, give it an extra duty of keeping budget too.
Keeping track your money is solely for your own good. Be honest with yourself. No one in the world would want to see your tracking. So, there is no reason to lie over what you are tracking. Do maintain track for all your money flow including cash, credit cards and even online transaction. When I first do my tracking, I only track my cash. I close one eye whenever I spend on my credit card or online transaction (god knows why I would do that). At the end of the month, I got cash balance (great!). But then I have to push my cash to pay my credit card because I overlook how much (and how easy) I have swipe my cards and spend my non-tracked money (actually, credit card money is "not" my money, it is bank's money, whatever). So, go on and track all your money flow. No need to worry about budget first. You will not be able to setup any budget unless you understand deeply how your spending habits are.
For the expenses, I believe that it important to maintain you tracking with categories too. Make it a main categories, for example, what I did is to have my spending track to Food, Essential, Gadget, Vehicle, Book and Leisure. This way, at the end of the month, I can easily see which categories that I spent more and if necessary reduce the budget for that category.
Track Your Habit
Let me explain more details on the money flow tracking. First, start with you monthly tracking. The monthly tracking should give you an overview of how you handle your money for those monthly spending. Start simple by tracking your income and spending. For spending, details out your monthly expenses. Categorized it to 2 categories; fixed expenses and variable expenses.
Fixed expenses is much easy to track. This consists of your monthly utilities bills, credit card payment, loan payment (housing loan and hire purchase) and savings (saving considered expenses? I will derive in details later for this subject).
Example : My Monthly Budget
Rules of thumb, the variance must be positive which means your income is more compare to your expenses. If the variance is negative, then your expenses must overloaded your visible income. This means that you must have draw additional cash through other means such as spending from your credit cards, borrowing money or withdraw from you banking account. In order to ensure your monthly tracking having a correct positive variance, other source of income such as said above, must be included in the "Other" income as detail as possible.
If you are just starting your budget, do not feel demotivated or frustrated just because your habit of spending more than your salary (income) now become visible on paper. Consider yourself lucky because there are thousands of people out there who live on unhealthy financial habit do not even aware how bad their situation is. As for you, now you know. And that is a good start.
For your variable expenses, it is good enough to estimate the number for the first time as long as you are being as honest and as accurate as possible. For these variable daily expenses, you have to keep track your daily spending from day to day basis. This might sound tedious, but I would highly recommend you start to do this today. Once you have done this for 2 weeks, the habit will caught on.
There are many methods you can use to easily track your daily spending. Here are some example:
- Using basic pen and notepad
- Write of as basic excel through your PDA phone. There are many latest phone that support MsExcel. On top of my head, I know Nokia N97 and Sony Ericsson P1i have it.
- You can directly track into your notebook or netbook. But it will be a bit impractical to have your notebook with you all the time and keep on turning it on and off whenever you want to write down your tracking.
- Use the Notes application from your phone. This application normally comes together with basic phone. I used this method for my daily tracking (Photo below), using simple code, such as "g" for gas, "f" for food, "b" for book and so on. For example, on 25th, my spending are gas[RM4.00], food[RM3.80], essential[RM5.00], leisure[RM5.00], cigarette[RM5.00] and gas[RM5.00]. Can you read what are my spending on 26th?
Regardless what tools you used for the tracking, make sure that it is simple, no extra cost (do not go and buy a new PDA just for the sake of tracking your money) and sustainable. The method must work well for you to maintain the tracking throughout the month.
I would proposed that you transfer all daily tracking from your mobile tracking tool (depends on which one you used) into Excel or other spreadsheet in your computer. This will give you better overview of you spending. Example below is what I used for my own tracking.
Example : My Daily Tracking
This list goes on until the end of the month. I set up a formula in Excel that can help to auto-calculate my total spending and also balance cash that I should have. From my monthly budget, I should already know how much I can safely spend daily. I put that budget in my tracking so that I know how much cash I should still have to survive the month. I also compare the calculated balance cash with how much cash I actually have in my wallet, to see if I lost any records. I also put formula to auto-calculate my budget per day. This will give me an overview of my daily spending limit. If I happen to overspent on one day, automatically my budget per day for the next day will decreased showing that I should slow down on my daily spending in order to stay manageable until end of the month.
If you like to try and use my tracking using Excel, you can have a copy by downloading the file here. Feel free to modify the Excel file to fit your own spending style.