(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)
Question: The year 2009 doesn’t seem to be starting out right for me. We just got word that our company will be downsizing, and that means some of us will be let go. People are telling me to make a budget, but I think what I need is not a saving plan, rather a spending plan to know ahead what my bills are. Can you help me make one? - Adel
Answer: Financial experts tell us that this year will be a hard one. Unemployment is on the rise, not just in countries like the US, but also closer to home. News reports say that the contracts of Overseas Filipino workers in Asian countries are not being renewed, and some companies are planning layoffs.
You’re not alone in being anxious about losing a job. But add to it the fact that you have bills to pay and if you don't have enough savings, you’re in for some belt tightening this year.
This is exactly why you need a spending plan or a budget. A budget is the very tonic many households need. It is a guide to help you be wise about spending so your needs are met foremost.
According to Use Credit Wisely, a booklet published by Citibank Philippines, a budget can help you: 1. take control of your finances 2. keep out of financial trouble 3. become a smarter consumer 4. set and achieve financial goals 5. pave the way to a secure future
A budget doesn’t have to be painful or difficult. You should control your budget, not let it control you. To do that, you have to spend some time organizing and planning. Then once you’ve set a budget, it’s easy to maintain.
Here’s how to keep a budget, according to Use Credit Wisely:
1. Set your goals. What is important to you? What do you need? What do you want? Group your goals into short-term, mid-term, and long-term ones.
Short-term goals are those that you will achieve within the year. Examples are paying off credit card debt, purchasing a new appliance, or saving for a vacation. Medium-term goals, such as saving up for down payment on a house or buying new furniture, target the next two to five years. Long-term goals go beyond that, such as retirement and college expenses.
2. Gather information. To capture an accurate picture of your finances, find out how much your household income and expenses are monthly. Look at pay slips, income tax returns, checkbook records, credit card statements, payment information for major purchases such as car loans, and financial statements from banks and financial institutions.
Income may include salaries, interest income, dividends, etc. Expenses may be fixed and variable. Fixed expenses do not change, and one example is rent. Variable expenses change monthly, such as food and gas or transportation.
3. Find out where you stand. Total your income and deduct all your expenses, and you will see how you stand financially. This step should give you an idea about your spending habits.
4. Check your bottom line. This will tell you if you are spending too much. If the difference between your income and expenses is positive, you have discretionary income and can use the amount to meet budget goals and for emergencies.
If it is negative, then you are spending way more than you should and are probably living on credit. Go over your expenses and find out where you can cut down.
5. Keep track of expenses. Start listing down all your expenses daily in a small notebook. Carry the notebook with you everywhere. This way you will see where your money goes.
You will be surprised that you can totally do away with some expenses. Examples are ATM fees when you use another bank’s ATM, or late fees for not paying your bills on time.
You will also be able to identify where you can lower your expenses. For instance, instead of eating breakfast every morning at a fast-food place, eat breakfast at home or bring baon to work. At P100 a day, those fast-food breakfasts will amount to nearly P24,000 a year. Even “fixed” expenses such as electricity can be lowered. Iron all clothes at the same time and use more energy-efficient light bulbs to decrease your power bill.
If you are keeping spending in control, congratulations! You will be able to meet your financial goals in no time. Now try to improve by reducing a different spending category by 5 to 10 percent.
If you still can’t keep to your budget, regain financial control by adjusting your spending. Get your whole family into it. Also, try to increase your income by looking for additional sources. Good luck!
(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts )
*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader's reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.
