Having an income for the first time after years of having no income as a student is an exhilarating feeling. It brings with it a sense of accomplishment, adulthood, and freedom that nothing compares to.
Adulting has never felt more real. It is even more fulfilling for fresh graduates when they start their first job.
The salary at the end of the month, and of course, the excitement of being at their first job keeps them going through the month.
Money is known to have a life of its own once it leaves the bank. One minute, there is money floating around, and everything is fine and then suddenly, there is none left, and the bills remain unpaid yet accounting for it is an uphill task. This happens to many fresh graduates regardless of their income.
When starting, many think that they have all the time and money in the world to afford these little mishaps since they will still have next month’s paycheck, but that isn’t good practice. It is important to take charge and stay ahead of these pitfalls from the outset. After all, nobody likes the panicky feeling when there’s no money available and important things need to be paid for. This is where budgeting comes into play.
Most young people here the word ‘budget’ and images of old uptight married couples with teenage children come to mind. They see it as being unnecessarily serious about life yet they still have the energy to keep working. Budgeting is simply about living within one’s means. It takes a lot of discipline and making tough but sensible choices, but it’s the best approach to financial freedom in the long run.
Need tips and pointers on budgeting? Here are a few crucial points that will help get things in order.
1. Identify expenses
Putting down a list of all expenses is vital since there are always necessities like food, healthcare, and rent. These should come first on the list followed by every other thing. Doing this helps to identify where all the money is going and gives one a full picture of expenditure.
These expenditures should not exceed 50% of the net income. Net income is what remains after mandatory deductions like CPF. Not more than half of this figure should go to necessary recurrent expenditure.
2. Set quantifiable financial goals and allocate money to them
Life moves fast, and everyone has financial goals they would like to achieve. Some want to own a home, buy a car, or have a particular net worth by a certain age. All these are great to have but can only be achieved if adequately planned for.
The best way to do it is by first finding out how much the goal will cost to achieve. Working backwards will then give an idea of how long it will take to get there if they save a certain amount of money.
Whether the math adds up or not, this exercise will determine whether one should adjust the figure or abandon the project, altogether. This figure then goes into the budget. Savings and money for investment should be at least 20 percent of the net income. 30 percent would be even better. Better still, the 10 percent can go towards emergency savings.
3. Set aside money for entertainment or fun
Life can be stressful, and it is good to enjoy it. Making room for fun and entertainment in a budget takes away the guilt of spending on seemingly unnecessary things since the important things have already been catered to. It also gives people something to look forward to. Keeping this capped at 20 percent will ensure sanity in fun. It may mean having to forego some pleasures or postponing some activities for later, but, what is life without balance?
4. Adjust habits accordingly
Putting a budget on paper is one thing but sticking to it is another. The first few weeks or months may be difficult to ease into for some because of the implications. A sudden lifestyle shift when others seem to be living large and looking okay at it may be difficult to maintain without discipline.
It could mean not passing by the usual hangout spots or losing some friends. It could also mean finding people that will help reach the intended goal; people to whom they can be accountable. For some it may involve setting up a standing order with their bank to ensure money is transferred into separate savings account before they can get carried away and use it.
This budget format is known as the 50-20-30 rule and is quite popular. It includes everything important while keeping figures sensible for every item. Where one feels they can adjust, mainly by reducing the expenses and increasing investments and savings, it becomes even better for working towards financial freedom and a clean bill of financial health.