Personal Budget Management Skills

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Personal Budget Management Skills

Sophie Chong
Program Director, Effective Tuition
MA (New York University, Steinhardt, Education and Social Policy)

Personal Budget Management Skills

Budgeting is a powerful process that can help you develop a financial plan and build financial capability and empowerment. 

It is important that you track income and expenses so that you can better understand your cash flow, set financial goals, and monitor your spending against your planned budget every month.

Budgeting puts you in control of your money and ensure it is being used to meet your needs and achieve your goals.

Skills that you need would include financial analysis to identify savings opportunities, discipline to stick to the plan, and flexibility to adjust your budget should circumstances change unexpectedly.

A budget is especially important if you:

  1. don’t know where your money is going
  2. don’t save regularly
  3. have problems paying off your debts
  4. feel overwhelmed by your finances
  5. feel like you’re not in control of your finances
  6. want to make the most of your money
  7. are planning for a major purchase or a life event

Making a budget can help you:

  1. set spending limits
  2. find ways to pay down your debts
  3. reduce costs and save more
  4. live within your means
  5. reduce financial stress
  6. have more money for things that are important to you
  7. feel in control of your finances

Understand your financial situation and budgeting process


Creating a budget document that outlines your estimated monthly income and expenses.


Calculate total income. List all your steady monthly income sources. Do not include uncertain amounts like overtime, bonuses, tips, sales of assets. If your income amounts differ each period, estimate conservatively to set yourself up for success.


Why budget? Budgeting helps to:


Track all expenses that include your actual spending and income. Keep track of all your spending. Categorize the items into fixed monthly/weekly costs (rent, loan payments), and variable costs (groceries, meals outside home, entertainment).


Set financial goals. Define what priorities you want to have in your financial planning such as saving for a car, a home, retirement, savings, or for emergencies.


Identifying your priorities and goals. What are the things you want to achieve with money – to save or invest for?

Think about your financial goals.

Budgeting is exciting when you are able to maximize the amount you direct towards your goals and can see yourself making progress.

Short-term goals to save for may include building an emergency fund or saving for a vacation.

Long-term goals may include saving for a home or investing for retirement.


Budgeting improves your ability to pay all of your bills and not run out of money during the month.


Create and stick to a budget. Whether you prefer to use a spreadsheet or a budgeting app, use something that you are comfortable with so that you can make regular updates and refinements.


Allocate where you will spend and earn funds. Create a practical plan for how you will spend and save your income, so that the amounts are aligned to your financial goals.

 

Start by estimating your fixed expenses, which are those that are the same amount each month.

 

Your rent or mortgage, cell phone bill, and garbage bill may be examples of fixed expenses.

 

List each expense and how much it costs.

 

Next, identify your variable expenses, which are those with different dollar amounts each month.

 

Groceries, eating out, gifts, clothes, and gas are examples of these types of expenses.

 

Estimate how much you spend on these each month.

Looking at past credit card or bank statements can help you to accurately estimate amounts.

 

Don’t forget to budget for expenses you may pay annually.

 

When finished, calculate your total estimated monthly expenses.


Making adjustments to the plan. Monitor and adjust. Regularly compare your actual income and spending to your budget. If you overspend in one category, try to allocate funds, increase income through an additional part time job, or reduce expenses. Be prepared to adjust your budget for changes in income or expenses.

 

Financial analysis. Learn how to identify where your money is going or coming from so that you can reduce unnecessary expenses.

 

Track your spending, and at the end of month, see if you spent what you planned.

 

Devise a system to record your spending for the month to see if you are staying within your budget.

 

At the end of the month, use the data to adjust your budget or adjust your future spending.

 

  1. Did you have spending leaks you did not account for?
  2. Do you need to create a new budget category?
  3. Do you need to adjust the amount you budget for certain expenses?
  4. Do you need to cut back on some expenses?
  5. Did you meet your savings goals?

Budgeting shows you where your money is going and reduce wasteful spending.

Stick to your budget, even if it means being disciplined to having to make short term sacrifices.

 

Compare your total estimated income and expenses, and consider your priorities and goals.

 

Now, compare your total estimated income to your total estimated expenses. If your expected monthly income is greater than your expected monthly expenses, you expect a surplus. That’s great!

 

If you expect your expenses to be greater than your income, you expect a deficit.

 

To address this, you will either need to reduce your estimated expenses or increase your expected income.

 

Make decisions that will bring your budget into balance.

 

For example, can you find a way to spend less on groceries or entertainment each month?

 

Or, can you get a second job to earn more money?

 

Flexibility. Your budget is a living document, and you might need to change some items or expectations whenever your life circumstances evolve.

 

Budgets should be adjusted over time.

 

Ask yourself, “Am I spending and saving my money in the way I truly want to?”

 

“Am I meeting my needs and working to achieve my goals?”

 

If you have more unspent money on a monthly basis, consider how to adjust your budget to redirect this money to achieve more goals or to achieve goals sooner than expected.

 

Patience. Building healthy financial habits take time and consistent effort.

 

Tracking spending, plugging spending leaks, adjusting your budget, and saving money becomes a habit over time.

 

Set yourself up for success by:

 

  1. Setting realistic and achievable expectations and goals
  2. Creating a budget and tracking system that is easy to use and maintain
  3. Automating saving and investing by setting up recurring transfers to savings or investment accounts
  4. Using strategies to reduce impulse purchases and build self-discipline

As you practice, build habits, make adjustments, and start seeing results, you will be more empowered to reach your goals.

 

With careful budgeting, you can free up money to pay down debt, save for things you really want, reduce stress and build confidence, and better prepare for emergencies.

 

What is your perspective and preference on budgeting?

 

Your success with budgeting may depend on your perspective.

Some people think budgets are meant to be restrictive, take the fun out of life, and make you feel guilty about spending. They might look at budgeting this way because they want to build a large nest egg as soon as possible, while they still have a good income.

 

Others may view budgets as too time-consuming to make or too difficult to follow.

 

Yet others feel that budgeting is an empowering process that puts you in control of directing your money towards what you really want in life – including having fun. This mindset approach therefore allows you to create a realistic budget, and is worth the effort for you to stick to it.

 

Creating and using a budget can be simple. Follow these steps to build and use a budget that works for you.

This budget tool may be useful in creating your budget.

 

Identify your short-term and long-term goals.

 

Make saving for those goals part of your budget.

 

For example, goals may be:

 

Short-term goals:

  1. paying off your credit card
  2. reducing your weekly expenses
  3. starting to build an emergency fund

Long-term goals:

  1. paying off all of your debts
  2. saving to buy a home or a car
  3. saving to have children, to go to school or to retire

 

To deal with unexpected situations, create an emergency fund.

 

Your emergency fund should provide you with enough money to cover your living expenses for 3 to 6 months. These amounts can sometimes seem out of reach. That is why you should start by saving a small amount on a regular basis.

 

Having an emergency fund will help you reduce financial stress and avoid getting trapped in a debt cycle.

 

To keep track of where your money is going, take note of what you spend.

 

Try this exercise for 1 or 2 months:

 

  1. keep track of everything you buy, from groceries to a daily cup of coffee
  2. keep track of bills you pay during this period, for example your telephone or internet bill
  3. try dividing your expenses into 2 categories: “needs” and “wants”
  4. Small changes to spending habits can have a major impact on your budget and your ability to save.
  5. Find ways to save money before shopping.
  6. Evaluate your needs and wants
  7. Knowing the difference between your needs and your wants is key to making a smart budget.
  8. A “need” is something that is necessary, required or essential. For example, a roof over your head, clothing, food, or medication.
  9. A “want” is something that you’d like, but don’t necessarily need. For example, meals at a restaurant, a trip, a gym membership, or designer shoes.
  10. Needs and wants aren’t the same for everyone. One person’s “want” may be another person’s “need”. For example, if you live near a bus route, a car may be a want rather than a need. However, if you don’t have access to public transit and can’t move around otherwise, you may need a car.
  11. Your needs and wants may also change over time. For example, a large house may be a need while you’re raising a family. However, a condo or a smaller home may be what you need when your children move out.
  12. Once you’ve figured out your needs and wants, you’re ready to make your budget.

 

When you’re done creating your budget, save it online so you can return to it anywhere, at any time.

 

Review your results

 

Review your results graphics, because they give you a clear visual of your overall budget.

 

It’s valuable to compare your financial habits with people with similar age, income, housing and family situation.

 

Review your next steps

 

These suggestions are based on your situation and what you have entered in your budget.

 

They help you figure out your next steps whether you have money left or are overspending.

 

Read them carefully and follow the links to useful educational tools and content to improve your budget.

 

Tips to help you stick to your budget

 

Now that you have a budget, try to stick to it and improve it as you go.

 

To help you with this task, try the following:

 

  1. keep all your receipts and bills
  2. limit your spending as much as possible to what’s in your budget
  3. update your budget with any changes, for example, a pay raise or a bill increase
  4. compare your budget to what you actually spend at the end of each month

 

Evaluate your budget from time to time.

 

If your actual spending often varies from your budget, adjust your figures to make it more realistic.

 

When comparing your budget to your actual spending, ask yourself the following questions:

  1. are there large differences between your actual spending and your budget
  2. which categories have the largest differences
  3. are differences due to an unusual situation or is this likely to happen each month
  4. can you save enough money to reach your financial goals or pay off your debts

Continue with this exercise each month. You can set a reminder or book time in your calendar to review your budget regularly. If you make it a habit, you are more likely to stay on track.

 

OUR MANAGEMENT TEAM

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Roger Tan

PGDE, National Institute of Education/Nanyang Technological University,
MSc, Computing and Information Science, Cornell University,

Former MOE teacher,
15 years of teaching experience in Mathematics and H2 Mathematics

tuition in singapore

Lim Hua Lei

Executive Master’s in Behavioral Science, London School of Economics,
Former MOE teacher

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Sophie Chong

MA (New York University – Steinhardt, Education and Social Policy),
BSc (Hons), Computational Biology, National University of Singapore,
12 years of teaching experience at a leading MOE school

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