Have you tried preparing your personal budget but cannot really stick to it? Are you like my accountant friend who keeps a budget but also have these unfavorable variances every month-end (meaning, she spent more than what she should)? Are you discouraged to maintain a budget anymore?
You are not alone!
Budgeting is a daunting task. Personally, I admit that budgeting does not work for me, at least at a certain extent.
Don’t get me wrong. Budgeting is wise and it is a must especially for huge companies. That’s the reason why businesses hire brilliant accountants and financial managers to do this for them. Nevertheless, when this is applied in the personal level, a number of times as I observed, it does not work in hitting the goal.
Accountant as I am, I tried having a detailed budget before but then I found myself not really following it. Well, I had this thinking that I am always within the budget but why is it that I am not hitting my target savings and investments at the end of the year?
Then came this realization: budgeting is just a tool, not the end goal. Hence, if the tool does not work for you, change it. With another tool, you can achieve your goal.
Focus on your financial goal, not on your budget.
If that detailed budget does not really work for you, try this alternative. It works for me. It may work for you, too.
The Basket System
I learned this from my mentor Bo Sanchez. Being a member of the Truly Rich Club, aside from from the stock updates and wealth strategies that I receive, I also get to have copies of Bo’s powerful financial talks. In one occasion, he shared about the basket system as an alternative to budgeting.
Use the 10-20-70 rule.
These represent percentages of your income.
10% for your tithe.
20% for your savings and investment.
70% for your living expenses.
(I reserve the discussion on the 10% tithe in another article.)
For the 20%, use this to fund your intended savings and investments. Start accumulating your emergency fund and start financing a stock market investment portfolio. Once you grow this, you can also use this to launch a business of your own or with your partner.
The remaining 70%, use it all for your day-to-day expenses. Use it for your meals, rent, transportation, and utilities. Use a little portion of it for movies, entertainment, or your little dreams – like that shiny shoes you saw at the store.
Prepare for the future and enjoy the present. The 10 & 20%. Then 70%.
For this to work, you have to set aside the 20% first.
Forget the old formula: INCOME – EXPENSES = SAVINGS & INVESTMENTS
Follow this formula: INCOME – SAVINGS & INVESTMENT = EXPENSES
Savings and investment should come first before expenses.
To do this, here’s a suggestion:
If you are a salaried individual like me, aside from your payroll account, open another account in the same bank. Now everytime you receive your payroll, before withdrawing cash for your expenses, transfer the 20% to your other account, a part of it, you may send to your account with your stock broker. Apply for internet banking to make this even faster and convenient. Do it online so that going to the bank at the end of the corner and the long lines won’t be your complaint.
The remaining 70% on your payroll account, spent it as you wish. Of course, prioritize your meals, transportation, rent and utilities before movies, entertainment, and ‘good’ gimmicks.
Yes, prepare for the future with your 10% and 20%; and enjoy the present with your 70%.
Try it out. This tool works for me. It may work for you, too.
I pray that you and I will hit our financial goal.
Make your way to prosper.
Live your life, young mind!
If you want to know more about the Truly Rich Club, click this link www.chrisdaoanis.trulyrichclub.com.
Read also the 7 jar funds, Fix Your Financial System.
Learn to start investing in the stock market, Seven Simple Steps to Succeed in Stocks