Monday, October 15, 2012

Money Matters: ‘Budgeting’ in Personal Finance

Money Matters is a short series of articles written by Ho Khin Wai, a Diploma in Banking and Financial Services student, in an effort to raise the level of financial literacy among NYP students. He will cover various relevant topics on personal finance for teenagers in Singapore, and strives to make these articles fun and easy to understand.


The first thing about personal finance and financial planning that comes to many people’s minds is “Budgeting”. Most people, including myself, are not exactly very excited by this word. Most of us find it a chore to keep a personal budget. Even if you do have one, sticking to a budget is a problem. And this may have caused us to dismiss the whole idea of budgeting. However, having a personal budget is important. It allows you to plan your spending and ensures that you are using your money wisely.

Today’s article does not teach you how to create a budget, because you can find lots of those guides on Google. This article will, however, show you how to keep a budget (hopefully for the rest of your life).

Don’t sweat the small stuff

Budgets are great for allocating our money for different purposes. However, some people take budgeting too zealously. That is, they jot down all the categories of items they want to reduce spending on and force themselves to strictly stick to the plan. This takes the joy out of having a budget and many will soon give up on it totally.

Instead of being so detailed and meticulous, what you can do is to broadly identify a few categories of items you think you should cut down buying and concentrate on that. This will serve as a good guide in your budgeting.  Moreover, it is wise to keep a small allowance to cover up for any unplanned expenses. By not stressing yourself out on the small details of budgeting, you may find your budget becoming easier to manage and maintain.

The “fun” expense

What’s good about having a budget when it ties you down? The purpose of a budget is not to stop every bad expense from being incurred, but to limit them so you have the “extra money” to be channeled into more important expenses.

Editor Ryan Ong from www.moneysmart.sg said, “You are not a machine. You need to have fun. And a common error is to leave no room in the budget for entertainment. It makes sense to regulate entertainment costs... But don’t try to cut out entertainment altogether”.

The Card Crunch

Without restraint and consciousness in your spending, a detailed budget is NOT going to help you rein in your finances. One way to be disciplined is to limit your card usage. By that, I mean your credit card, debit card, cash card and even your ATM card. When making a purchase, always try to use cash if possible. Why? First, cards will always give you the impression that you have loads of unused cash waiting to be spent.

The idea here is because you do not “see” cash, you are not able to fully realise that your money is going out until you get the emotional disappointment when you look at your bank statement. Secondly, with cash, you are less likely to carry so much money around in your wallet. You will most probably be insecure and uneasy if you leave home with a wallet with a stash of fifty-dollar notes, right? With cash, you will also be more conscious of your spending and will be mindful of expenditures that need to be cut down as written down in your budget plan.

Reviewing your budget

At the end of the month, find out if you managed to meet your goals and limits and highlight the items that you have overspent or underspent, and by how much. Do not be afraid to make certain changes to your budget so that it is more realistic and manageable. Remember, take baby steps. If you overspend this month, do not beat yourself up because of this. People make mistakes, accept your failures and tell yourself to be more disciplined next month.

Photo Credits: Tax Credits, ToniVC

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Khin Wai is an NYP Year 2 Banking and Financial Services student from School of Business Management (SBM). He started writing for NYP Portal in 2011 out of interest and was soon "addicted" to it. He has also written book reviews for Straits Times YA Classified. Besides writing, he loves singing and has performed for various events in NYP under NYP Soundcard

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