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Saturday, April 14, 2012
Ways to Cut Budget: Pay Yourself First
I have posted on the Ways to Cut Budget: Buy Only What You Need two months back and promised to come back with more ways to cut budget. The second way to cut budget in which I am going to write about is to pay yourself first.
When one mentioned about budgeting, what usually comes into mind is how much money is going to be allocated to personal expenses, loans and many other spending that one can really think off. In fact, what we usually forget in planning our budget is to plan how much we are going to save. One of the ways to actually cut budget is to pay yourself first, when you are planning the budget for the whole year or for the particular month.
Savings in fact is supposedly to be one of the major component in our budget, but nevertheless we will never see that in most of the budget - this include personal budgeting, companies or even countries.
Let us talk about the personal budgeting for individual. I remember previously I have written on the monthly spending guidelines, and one of the component inside the guidelines is savings.
It is obvious that if we plan our budget according to how much we are going to spend, we might ended up with less savings or no savings at all. In fact, budgeting planning based on spending is the easiest way to allocate the budget as it requires less or no planning at all.
However, budgeting based on how much we intend to save is not easy and requires discipline to do so. Warren Buffett most famous quote on savings - "Do not save what is left after spending, but spend what is left after saving", also teaches us to spend what is left after savings.
The most effective ways to do this is by doing a standing instruction to the salary account to transfer a sum of money to another savings account dedicated for savings purposes. To make it difficult for one to withdraw money from that savings account, it is best to have the savings account without ATM card or debit card.
Nevertheless, the financial and saving goals must be realistic and achievable. For example, a person earning RM3,000 will definitely can have higher saving percentage than a person earning half of his earning as majority of us would already have fixed expenses like food or transportation. Trying to save too much money ended up skipping meals and getting low quality products might end up having one to spend more for the side effects of the stressful financial goals.