Stoned

That's how I feel currently, after finished a long day at work.

Heading out for Jap test, meant more stoned.

During dinner with Tab, was discussing aspects of budgeting and financial planning in regards to her intending to save up for a flat plus wedding etc. The main topic was about creating a detailed budget.

Lemme revisit budgeting, which was a fundamental and crucial first step I had embarked upon once I started working since Temp days. Given that I have actual experience in this, maybe listen and try it out for yourself.
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101 of Budgeting by Hellbound

The financial maxim of Money and savings. "开源节流" => earn more or spend less.

The steps that I had taken, followed by an explanation of the uses, applications of the steps. Of course carrying out is a must, otherwise what's the use of planning?

1)Record all expenditure in a day, with some details for every amount recorded eg lunch, CD, book, concert, dinner, Friday drinking.

Rationale: To get a realistic idea of where all your money are going, to what categories of expenses, you need concrete data, not just aga aga. Not if you want to be able to reduce your spending and thereby without getting extra income, effectively increase your savings.

2) Looking through 1-3 months of your recorded amounts. Only then at the end of 1 month each, tallied up the amounts into Sub-categories by lumping together the relevent amounts from the details of the entries.

Why I choose to only lump up the amounts at the end of 1 month instead of just broadly indentifying sub-categories eg Food straight away? Its because I want a finer details of my expenditure pattern. I want to identify Food for normal meals which are inevitable and Food for weekend outings, money for public transport, money spent on Taxi rides. Occasional expenditure versus monthly expenditure. Basically money spent on neccessities versus money spent on specific indulgences. I want to separate out them from the start to have more strategies to deal with them.

3) By looking at the sub-categories derived from Step 2. I can now see exactly how much money goes into Normal meals, Outside meals for weekends, Hp,internet bills, hobbies eg books, cds, Drinking sessions, Shopping which can be further sub-divided into shoes, tops, bottoms, working clothes, casual clothes, bags and many more.

Where to get this finer details? They all come from your details in your monthly daily expenditure record. Why do I need to do this Ma Fan thing? Just aga aga I know I spend on clothes $300 can liao. BUT if you want to really identify areas that you can reduce, I would advise having finer details of categories. SO THAT you dont have to say things like I cant shop for this month, or I have to stay home for this entire month. It could just be, I need to cut down on my shoes alone, the rest can maintain and eventually you save more. Its that powerful IF you really get through to this stage.

Another aspect is that NOT only can you derive a figure for your general expenditure, your specific expenditure in each sub categories, you can also see the number of times you carry out a particular purchase. Eg Oh I didnt know I buy 6 tops this month, go to movies 6 times, bought 7 pairs of shoes. You maybe surprised by the number of purchases per month for certain sub-categories.

4) Now is the time for analyzing your expenditure pattern which is now finely divided into sub-categories representing your true expenditure pattern which is specific to you (my expenditure would include external courses fees but friends may have differing sub-categories eg car maintainence, car petrol, car parking)

i) What is your total expenditure in a month, including and excluding once-off items eg Holiday, which can also be budgeted into.

ii) How much do you exactly save in this month, putting in your nett pay, less of all your actual purchases for the month? Are you happy with this figure? If you are, game over, no need to continue. If not, then go onto next question.

iii) Which is your top 3 sub categories? And how much is it relative to your income?

iv) In this 2-3 categories, which ones are necessities, which means usually very very hard to reduce without affecting your standard of living and material comfort. Which ones are more of indulgences? You may have more than 3 indulgences. If that is the case, then identify which 1-2 are seriously over limit. A gauge is the total amount spent for it.

v) Set out to reduce the total amount spent for that 1-2 indulgences by smaller amounts initially eg reduce $350 spent on working clothes to $300. But $50 is not much you say, but remember savings is cumulative. Its not only $50 a month extra saved, its $600 a year. Why such small reduction? BECAUSE it is punishing and difficult psychologically to suddenly stop buying things especially indulgences, just like smoking. What is effective is to slowly reduce a bit, so that you can still buy, still have indulgences, but over some time, effectively reduce that total amount.

vi) With the figures decided, now you can do simple averaging and obtain figures like Target amount for spending eg $50 a day max, Shopping is 4 tims a month instead of 3 times, each time budget about $70 instead of uncontrollable bursts of spending, if I already bought 4 pairs of shoes, immediately no more buying of shoes, Weekend outings maximum is $100 per weekend etc

There are then many many more strategies and figures can be derived for the sub-categories.

The very very important last step is to actually CARRY OUT the planned reduction for the identified sub-categories. It requies you to make a conscious decision during purhase to remember certain limits, amount YOU have set to achieve and try as much as possible to stick to.

Hopefully by the next month, through your continued record of your purchases, you can (1) see if you have effectively reduced that amount in that indulgences, (2) see if you had instead spent more in other areas, (3) see if you have been effective in raising your saving amount. And then continue to review and monitor a bit until you are satisified with your new saving amount. By then, it becomes so ingrained, you will make unconscious decisions to save more and every month have surplus and a high surplus.

These are based upon my own experience at least for the earlier years of working, which was how I set about building up my reserve and investment capital eventually by last year.
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Later on I had moved onto other ways of tracking monthly expenditure and savings which I can share if you are interested.

But even I am now currently doing this monthly long, daily record of expenditure. I have just started for 3 days. Cos I want to have a clear idea of where are my money going and see if I can PUSH up my saving rate to a much higher level. Why? Cos I somewhat wanna quit so I wanna make the next few months savings much higher to build up the reserve faster. I was rather lax in the last year or so.

For friends who do not know how to carry out Step 2. After you have finished writing up a 1 month long daily expenditure list with details, can pass to me, I can help you sub-divide into categories, identify indulgences for you etc provided you write more details of each purchase first.

Hopefully some aspects can be put to use and help you on your path to saving more for your home, investment, build up reserve and eventually investment.