“Why do I always burst my wallet?” This is a common mystery to many people. It is pretty easy to find the solution. Is your budget a realistic one or just some numbers you are hoping it will happen? And, what has possibly gone missing or wrong?
1. Major category and arbitrary amount – You are listing the major category of expenses and some arbitrary numbers. A real budget has to be detailed and based on real numbers. Undoubtedly, a budget is a financial projection that will happen in the future but that doesn’t mean, you cannot get it right. In point of fact, it is almost to account for everything and anything in your budget. However, it has be to as detailed as possible to ensure you do not missed out any major expenses.
2. Trimming fats in an unrealistic way – Usually first thing people would cut in his budget is the variable cost since it is something you probably can live without. In all likelihood, entertainment and gift for ourselves are perhaps the likely sacrifices. Please don’t. Everyone needs fun and some form of motivation. The more one is deprived of something, the higher the possibility of over-spending. You can trim some from this category but should still leave some in the budget.
3. Missing items – I am pretty sure you have forgotten to budget for your daily caffeine dose, snacks (in the grocery list), working lunches and possibly, the anniversary gift or celebration to keep your spouse happy! As a matter of fact, my family are patsy for chips, ice cream and small snacks when we do our grocery shopping.
4. Unforeseeable – Yes, unforeseeable is self-explanatory. Notwithstanding, some unforeseeable items are given notice in advance like friend’s wedding gift. The real unforeseeable is medical. No one anticipates to fall sick!
5. Seasonal and Periodic- A good example would be utilities bill. Every year from May till August or even till September, the weather in Singapore is really warm. Remember, how badly the haze was during the past years? The best invention on earth is … air-conditioner. During this “season” (Singapore is seasonal – hot or hotter), we would switch on our air-conditioner longer and more frequently. One of the expenses which often being forgotten is the annual payment like income tax (if you aren’t paying by instalment), road tax, car insurance and servicing etc.
6. No pride – If you are one who do not believe in budget yet being forced to do one, would you by any chance have any motivation to really do a good one? Alright, do visit my earlier section on why you need a budget, believe in it and do it!
7. Stay focus – It is important to stay focus to the objective(s) of your budget. Does it help in keeping a family photo or the photo of your dream house in your wallet and look at it when you start to lose steam? It is perchance useful to set small milestones and celebrate (in a cheaper way) when you hit the milestone. Everyone needs little rewards when you achieve something.
8. Last but not least, work through the leakages, milestones and objectives with your spouse. You do need a partner in crime.
It is perfectly sensible to have debt, and what we called leveraging. Nevertheless, there is good debt and bad debt. Debt that you take on to purchase something that will increase in value is very likely a good debt, e.g. housing loan since home value usually appreciates over time or an education loan for yourself or your kids which enable the beneficiary to earn more monies over the lifetime. Whereas, debt that is used to purchase something consumable and not increasing in monetary value. A good example is credit card bills especially purchases for daily subsistence and entertainment including IT gadgets, household appliances and even holidays. You should repay your credit cards every month instead of letting it roll over and start paying interest and charges for it.
For purpose of financial planning, you should not borrow to finance another borrowing. Take for example, since home loan is a good debt, you may think of borrowing more to repay the bad debt like credit card bill for household appliances since the latter is for the home as well. This is definitely a bad idea! Remember, household appliances depreciate over time. And you are repaying debt with debt. Debt should be repaid using cash and not debt. A higher mortgage loan means a higher debt to income ratio which will affect your borrowing in future. Additionally, you will take longer to repay your mortgage and getting financial freedom. Anyway, the higher the leverage the higher the stress level, it hurts your financial and mental health!
If you are really no good at managing your finances via credit card, try switching to cash spending method. It means inconvenience in queuing to withdraw cash, it gives you a better feel of spending it.
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