The system of budgeting we discussed in the past two articles will definitely help you pay yourself first and live within your budget. Make sure your budget fits your lifestyle. Do not budget more than you earn because you will just be frustrated.
Many are already following the rule “Income minus Savings equals Expenses.” Unfortunately, they forget that the Expenses should be a positive number and not a negative number. If it is a negative number, then you are already way beyond your lifestyle capability.
For example, if your Income is 100 and your Savings is 10, you are only allowed 90 (100-10=90-90 for your Expenses equals 0). You have a correct budget.
If your Expenses show 85 (100-10-85=5), you can even save the extra 5 as part of your Savings.
If your Expenses show 110, then that means negative 20 (100-10-110= -20), this means you are on a negative number. Your budget is very wrong. Separate your “needs” and “wants” in your budget so you can quickly make adjustments.
You should never consider borrowing to finance the negative number. When you use your credit card and you do not really have the cash to pay for your expenses, you are in effect, borrowing to finance your regular expenses. This will hurt you in the future because you will end up with the highest interest rate for borrowings.
Some even ask if you should borrow to finance your Savings. This happens when you are offered an option to invest in something and you believe the investment is a saving. Don’t ever be tempted to borrow to invest in something that is not a business that you have analyzed and understood carefully. You have to pay for your borrowings whether your investment makes money or not. Do not be tempted by high returns. Be very careful!
Here are a few more tips to help you keep your budget with determination and some self-discipline.
- Monitor your budget regularly so you can make changes
- Realize that there can be unexpected expenses like an emergency house or car repair. Know what you can cut out in your “wants” to accommodate the emergency.
- Include “rewards” in your budget. For example, eating out maybe twice a month if you have met your budget.
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Francisco J. Colayco is an entrepreneur, a venture developer and financial advisor. He is the Author of Seven Bestsellers in the Pera Palaguin Series, the latest of which is now available in bookstores: “Wealth Reached. Money Worked. Pera Mo, Pinalago Mo!” Find his works and catch him on TV and radio. Check out: www.colaycofinancialeducation.com, www.franciscocolayco.com, www.kskcoop.com, FaceBook and Instagram.
