Career Debt Management

The Beginner’s Guide To Building A Budget

If you want to control your spending and work toward your financial goals, you need a budget. A budget informs you how much money you expect to bring in, then compare that to your essential expenses and discretionary spendings. Instead of viewing a budget as a negative financial tool, you can view it as a tool for achieving your financial goals. The steps in this article can help you create a budget.

“A budget doesn’t limit your freedom; it gives you freedom.”

Rachel Cruze

You already have so many things on your plate as a twentysomething–building a career, maintaining a relationship with your significant other, and making sure you are still mentally sound. And now, you have to do your budgeting, which seems like a daunting task unless you had a silver-spoon upbringing. Taking control of your financial life is essential, which is why you need to have a budget in place to monitor your expenditures. You may argue that money does not matter, but have you forgotten how much trouble you had to endure in order to repay your credit card debts?

You do not need to be a rocket scientist to build a budget that will lay the groundwork for a stable financial future. Below is a step-by-step guide on how to put together a budget:

1. Establish your income.

List down all your income sources. They could be passive income from your job as a part-time graphic designer or your portfolio income in the form of dividends. Your income is the first item on your budget, and it should be disposable income (i.e., income after taking into account taxes). It is not realistic to assume that you will get 100% of your income because the government will take a portion of it in the form of income tax. Hence, you should not include nominal income in your budget.

2. Write down your essential expenses.

Essential expenses are purchases that you need to make every month to survive, such as food, water, clothing, utilities and rent. On the other hand, shopping for electronics, concert tickets and luxurious handbags are considered necessities because even if you do not have them, you can keep yourself afloat. Hence, they are not categorised as essential purchases.

3. Do not forget to save.

A budget is designed not just to cut your expenses but also to guide you on how much you should save every month. Therefore, saving is one of, if not the most critical elements of your budget. In addition, by keeping a small portion of income monthly, over time, you have a large pool of savings to tap into in the event of an emergency.

4. Now you can talk about wants.

Only when you have covered the fundamentals, you can think about allocating the remainder of your monthly income to your wants. The worst thing you can do with your money is neglecting your needs and savings at the expense of chasing after short-term pleasures. I am sure you have heard this saying by Warren Buffett before: “do not save what is left after spending; instead, spend what is left after saving.”

5. Your budget does not need to be firm.

When you are making a budget, keep it flexible. Depending on the circumstances you are facing, your budget can and will change. Having a safety net in your budget enables you to adapt to unexpected changes without going penniless.


Final 2¢: Protect your wallet.

Although everyone’s budget is different, they share the same fundamental elements. You have income, expenses and savings. Budgeting is a very personal plan, and hence, you should not compare your budget with others.

The purpose of a budget is to help your purse to fatten. It is to assist you to have your necessities and, insofar as attainable, your other desires. It enables you to realise your most cherished desires by defending them from thy (your) casual wishes. Like a bright light in a dark cave, your budget shows up the leaks from your wallet and enables you to stop them and control your expenditures for definite and gratifying purposes.

By following the steps above, you will be able to journey towards your long-term financial goals and still have a fun-filled twenties.  

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