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Even if you think you don't earn enough to save money or pay off your debts, it's good to have a clear picture of your personal financial management. Creating a budget will help you see where you're starting from and what you can do with your money.
Imagine you're going on a journey and know your destination but haven't planned your route yet. You'll need a GPS or map to plot your course. Think of a budget as your financial GPS.
A budget is quite simply a spending plan and a tool to help you take control of your money and reach your financial goals.
Having a budget can essentially stop you from blind-spending, or being unaware of where your money is going. If you want to be prepared for a financial hurdle or just want to make your money go further, then understanding the importance of budgeting is the place to start.
Take a moment and think about whether you could be spending your money smarter, rather than buying those everyday meal deals, coffees or impulse purchases.
Budgeting is all about setting sensible and realistic guidelines for your spending so that you can achieve your goals, whether they be short or long term.
It's important to note that a budget can be flexible, and is not something that should add unnecessary stress to your life. If you need to make changes, you can do so at any time to suit you! See a budget as a support mechanism, rather than a restraint.
First we need to understand the different ways of recording your budget. This could simply be pen and paper, a spreadsheet, or those interactive apps that link directly to your bank accounts and track your spending for you.
As you can see, there are many ways to budget and it might be worth trying a few of them out to see what works best for you. Regardless of which option you choose, you need to look at the big picture. Your budget needs to tell you a few things:
Once you've this worked out, you can refocus your spending and start that journey to reaching your financial destination.
You can also look at some budgeting strategies. These methods are just a guideline, and can be changed if necessary to cater for different needs such as paying off more towards any debts.
The first method is called the 50:30:20 rule – 50% of salary towards your needs, 30% towards your wants, 20% towards savings/debts.
The next style is the envelope method – this allows you to choose how much you wish to spend on different categories each month. You essentially set aside a limit for your total spend on things such as eating out or shopping, and you can add however many categories you like.
The following option is pay yourself first – most budgets start with a focus on your expenses, whereas this method reverses that idea. Essentially, pay yourself first means you prioritise your savings for the month, before thinking about your other expenses. On every payday, the first thing you do (excluding your rent and bills etc.) is set aside a certain amount of your salary in a savings account, and then budget with what you have left.
Identifying areas where you can cut back on your spending will differ from person to person. So it's important to set yourself realistic guidelines when budgeting.
There are ways to help you identify where you are over-spending, such as the digital money tool Budget on HSBC HK App. Or you can just go through your bank statements and identify where your money goes.
Here are some other ways you can try to cut costs:
Check your employee benefits and offers, such as medical benefits and staff discount deals.
Look around and see what rentals are being offered in your building or neighbourhood. And whether other areas might be cheaper and more convenient to live in. Explore the market and negotiate with your landlord, especially when your rental term is over.
If you have a mortgage, shop around to see if you can switch to a better deal. This could keep your repayments low or reduce the amount of time you spend paying it off.
Household bills make up a large chunk of our spending. The good news is that it's easy to save hundreds of dollars off your bills.
Asking for a better price is one option, or use price comparison tools to see which provider is offering the best deal.
When paying off debt it's easy to try and focus on the lending that has the higher balance. But paying off the debt that charges the highest rate of interest first will save you money in the long term.
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