5. Swabeng Strategy: How do you really set your budget seriously?

This should be your first step towards your financial freedom. This step has no time frame and should be done religiously for the rest of your life and make sure your next generation will learn from it too.

I have been reading some books as well as some blogs on how to set your budget. To be honest, there is NO universal distribution on how you should budget your paycheck on a monthly basis. It would still be up to you on how you distribute your budget.

Let's say you are the sole breadwinner for your family, it is crucial for you to be able to set a budget and make sure to follow them as religiously as you can. Given that your spouse works too, you may have a slight advantage with your budgeting unless your spouse has other plans. 

0. Determine your purpose of Budgeting

What is your main reason on why you have decided to budget? Is for a short-term goal? medium-term goal? or long-term goal? Whatever your goal is, what matters is that you have one (or more) that's why you decided to have a budget. Deciding to do Budgeting without any purpose is like planting a tree not knowing what fruit it will bear.


1. Determine all your sources of Net Income

This will be your base on how you will budget for a specific time frame (say 2 to 4 weeks). Your net income should be the entire pie or 100%. If your spouse would help you with the budgeting, so much the better. If you have more than one source of inclome, the better. The more sources of income you have, the bigger pie you'll be having.


2. Determine your Needs (Living Expenses) and Wants (Lifestyle Expenses)

Other books would say Wants and Needs. It should be the other way around. You have to determine what you need and what you want for a day, a week, or a month so that you would be able to determine how you would allocate your budget. Just remember that your need may be someone else's want and vice versa so be very particular in determining your needs and wants.


3. Allocate your budget according to your Needs and Wants

Your needs should have a bigger budget allocation than wants (Definitely!). The lower the percentage for your wants, the better (at least for now) until you have saved some for Emergency Funds (to be discussed soon). You may also set some room just in case you go over budget (atleast 5-10%) as your buffer.


4. Make sure to stick to your budget and review them periodically.

As I've set previously, budgeting is a lifelong skill that you need to sharpen as often as possible. There may be unexpected expenses along the way, but as long as you know your budgeting priorities, you're good to go.


I would soon show some examples on how you can allot your monthly budget according to your Needs and Wants.

For now, please take some time to plan and set your budget using the guidelines given. You may add some suggestions via the comment section if you wish to.

See you then.