Being Smart with Money!

Chapter 3: Budgeting Your Expenses

What is a budget anyway?

An estimate of INCOME and EXPENDITURE for set period of time, normally on monthly basis

Myth: I don’t have time to work on a budget.
Truth: You don’t have time not to make a budget!

Everybody does budgeting, and this means every Tom, Harry and even the government! 

Without a Budget, you have a high likelihood to Bankcrupt 

Importance of Budgeting

I call this, "the Budget Pyramid"

Ultimately, to REACH YOUR FINANCIAL GOALS!

Preparing Your Budgeting

How do you prepare your budget? It sounds like a very tedious work but hey, it is not as difficult as it seems

There are 4 key points that you need to know when preparing a budget:

  1. Financial goals

  2. Estimate of your income

  3. Savings

  4. Expenses

    • Fixed expenses are expenses that stay the same from month to month, such as rent payments

    • Flexible expenses are expenses that change from month to month, such as how much you spend on utilities

Hope this section provides you the esentials of budgeting and money management. 

Good personal financial management if practised from a young age will be able to provide comfort for life.

It begins with the prudent management of your income.

Your success in achieving financial goals does not rely solely on the amount of income you received but how you manage the income.

An important step to be taken is to create a budget to help you plan and control spending.

Make smart shopping decisions by identifying your needs and wants.

By practising good money management, you will always have extra money.

The next wise step you can take is to save or invest the money in financial institutions for future needs.

Click the PDF button below for an example of a simple budget or click HERE for the built-in calculator:

The cashflow diagram:

Let's program our mindset on managing our finances based on the following diagram

(adapted from Rich Dad Poor Dad by Robert T. Kiyosaki)

We call this the cashflow diagram. We have 4 boxes; Income, Expenses, Assets and Liability

Income

Expenses

Asset

Liability

A typical income earner will earn their income on monthly basis...

cashflow in ------->

... and they will use part of their income to pay off expenses like phone bills, food, fuel etc

-------> cashflow out

if he has loans for example, personal loans.. it will be a liability. Hence the arrow from Income goes to Liability

A healthy cashflow diagram, in which we want to achieve will be like this....

Expenses

Income

Liability

Asset

Liability

Income

The goal is to enlarge our income portion by getting better job and investing in income generating Assets...

.. and cutting the expenses low

.. enlarging the Asset portion by investing in properties with good rental yield, stock market, mutual funds...

.. and keep liability low.

This diagram explains the secret of why the rich gets richer.

Important for us to know the one and only RULE: know the difference between an asset and a liability, and buy assets. 

It sounds simple but most people struggle financially because they do not know the difference between an Asset and a Liability!