Budget 101 – How to Manage your Money and Spending

11th April 2017
photo of budgeting with pen and calculator

“Budget” is a term thrown around a lot of times in both personal and professional conversations. Many of us in the public sector hear this word all too many times and usually it comes as one of the reasons why we can’t have nice things. We can complain all we want but how much do we really know about what budgeting is? And how much of budgeting have we applied to our personal lives to say we can be trusted with hundreds if not thousands or even millions of funds? Budgeting usually goes hand in hand with saving up for a goal.

What is a budget and why should I care?

The definition of a budget is simply an estimate of how much you earn and spend within a set period. For organisations this period is usually in a year but for personal use, it’s more realistic to take it into monthly or even weekly timeframes.

Setting yourself a budget puts you in control of your money. You know where and for what your hard earned cash is going into and you are more able to make smarter purchasing decisions. Have you ever splurged on something and then said to yourself “Wow, I guess it’s nasi katok for the rest of the month now.” or something similar? Budgeting helps you predict and manage risks that may put a big dent in your finances.

Benefits of a budget

  1. You know where your money is going.
  2. Ability to adjust spending habits.
  3. Possible to plan for expected and unexpected spendings.
  4. Helps you focus on your money goals.
  5. Allows you to determine how much debt you can take on.

Where do I start?

A budget is planned and comes from an analysis. To analyse your finances you simply have to note down the following:

  1. Your income.
  2. Necessities (e.g. petrol, food, transportation).
  3. Bills (e.g. phone, internet, water, electricity).
  4. Leisure (e.g. restaurants, movies, holidays).
  5. Financial products you have (e.g. insurance).
  6. Debt repayments (e.g. car, house mortgage, credit card).

This can be done on a computer spreadsheet or by pen and paper or even by a phone app. The result of doing this will be that you know how much you roughly spend on any given month.

Rule of thumb in allocating budget

A few years back, I learned a general rule of thumb on how to tackle budgeting. I always wondered how people reached a value which seemed very subjective to me. The general rule is you take your salary and split it into categories:

  • Necessities – 65%
  • Short term savings – 10%
  • Long term savings – 10%
  • Leisure – 10%
  • Charity or goodwill – 5%

Short term savings could mean saving up for a car or a holiday. While long term refers to deposit for a house or retirement. You can play around with the numbers; for example, if you’d like to enjoy more (taking it is necessary for you), you may allocate 15% into leisure instead. It’s all up to your lifestyle and adjusting to suit that.

Stick within the budget

Having a budget is meaningless unless you discipline yourself to stick with it. There will be many a time that you will be tempted to go over “just a little” but remember that every time you go over, it gets easier. And this is hazardous when we want to create a habit of living within our means (not counting expanding the said means).

For me, it is easier to stick to a budget when I have it at my fingertips. I use an app called Spending Tracker but there are many apps that serve the same purpose. You put in the amount which you want to keep within, and the app helps you keep track. Every time I spend, I’ll input it into the app and the app saves it. At the end of the month I can recount the times I went out for food, bought petrol and how much premium I paid for insurance. It’s an easy habit to gain once you mentally prepare yourself to document your spendings.

Be a little flexible

Now, I don’t want to contradict myself by saying you should “close one eye” to buy something sooner. What I mean by being flexible is that once you know your limits, you can play around these numbers. What happens if I wanted to buy a new phone for $500? “I don’t have that kind of cash to drop on this!” your budgeting mind would say. So it’s time to get a little creative. But do not do this if you have not disciplined yourself. 

What I do is I “borrow” from my future budget. I would maybe split my payments into several months to “pay off” myself. So for that $500 I would probably split it into 5 months of $100. What this means is I will have $100 less to spend per month as a trade off to buy this new gadget.

The danger here is you might be tempted to “loan” more and more which may lead to something of a crash. My rule of thumb is to loan for one item, pay it off before buying another. Self loan means self enforced; so if you’re not disciplined enough, you will have a hard time.

Expenses are more than income?

Analysis of your finances can be an eye opener for some. Some may find their monthly spending seems to exceed their income! If your cashflow is in the red, slowly but surely, your cash reserves are draining and one day it will hit zero. Knowing this, what actions can you take to mitigate running out of money? This could be one or a combination of:

  1. Know your wants and needs. If you’re spending a lot on eating out, do consider cutting back or find alternatives.
  2. Exercise self control. When wanting to make big purchases, think whether you have enough for other obligations like loan repayment.
  3. Cut back on unnecessary subscriptions. Do you have a gym membership or mobile phone line you don’t use?
  4. Focus in paying high interest debts. High interest debts put a toll on your finances if you have been paying the minimum due to compounding interest i.e. interest on your interest.


Having a budget allows us to live comfortably by knowing that our money is being spent for top priority purchases rather than fun but low priority items. Mastering a budget in reality takes creativity as well as discipline to believe in your goals and aspirations to commit to it. A quote that seems true for budgeting is:

“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”

– Joe Biden, 47th Vice President of the United States

Like an investor scrutinising a company’s balance sheet to have a glimpse of their financial health, a person’s budget reveals a lot of what they prioritise in life, be it immediate gratification or a more future-centric plan.

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