25 July 2007

Fixing your Money Problems - 6

Part 6: (Manage your monthly spending)

Ever had the situation where, after you recieve your salary, you go out and buy all the things you wanted to but couldn't from last month? And go out to restaurants maybe, or shopping, and generally spend quite a bit, because you know you have a lot of money in your account?

Has it ever happened that three, two or even one week into the month, you realize, oh no; you managed to spend most of your money, and end up living on a budget until your next salary? And perhaps you also realize that there are unpaid bills, so you end up waiting for the next months salary to pay last months bills?

A lot of people actually live this situation month by month, or a similar one at least. Hopefully this post will help you fix that. To manage your monthly salary and how to spend it, you should divide it into three things; lets call these 1- monthly bills, 2- savings, and 3- regular expenses.

Monthly bills should include anything that needs to be paid; electricity bills, phone bills, possible loan or credit card payments, rent, etc. Savings are amounts you want to put aside for the future, and regular spending includes everything else, such as food, gas, shopping, etc.

Now, in order to not get yourself in financial trouble, you need to organize how to divide your money between these three. The reason most people end up in problems is because they prioritize the wrong way; they end up spending money on their regular spending first, then pay their bills, and reach a point where they realize, oops, I spent a little too much. Little or no money is left over to be saved, so they decide, maybe i'll save next month. And so on it goes.

The way you should be prioritizing your spending is as follows - Lets assume your salary is BD500:

1- Paying off IMPORTANT monthly bills

If you have any loans, then they most probably get deducted from you account automatically. If not, then make sure you pay them off. Next is any credit cards; you HAVE to pay off the minimum amount, and if possible, pay off more (more on these in a future post). Any other bills, such as rent, electricity, phone etc need to be paid off. The reason I highlighted "Important", is because you should try and get rid of any extra impractical bills; perhaps you have a subscription to a magazine that you hardly read? Or subscribed to a satellite channel but you're hardly ever home to watch it? Whatever it is, just make sure your monthly bills are paid off first and foremost. Lets assume your monthly bills come to a total of BD200, leaving you with 300.

2- Saving a reasonable amount

After paying your bills, you need to try and put aside a reasonable amount for saving. How much this amount is will depend on your salary, your expenses, bills, etc, and differs from person to person. Obviously the more you save, the better. If you really have no idea, I find it good to save somewhere between 25%-50% of whatever you have left (the higher your salary, the more you can save and still live well off). If you still have no idea how much to save, send me a message and i'll try to help out. Considering you have BD300 left from the above example, lets say you decide to save BD100.

3- Using any remaining amounts for your regular spending

Now, according to the above example, you are left with BD200 to spend over the month. If you keep this whole amount with you, its very likely that you will spend a lot more at the beginning of the month (when you know you have a large amount), and less at the middle (when you realize you spent a good part of it). Instead, you need to divide it in a way that makes it easy to even out your spending.

Take the amount, divide it by 5 (ie, 4 weeks in the month and a little extra), and withdraw that amount on the same day each week. Use that amount for the week, and try to budget yourself for those seven days (its much easier to budget a small amount over seven days, than it is to budget a large amount over a month). In our example; BD200 divided by 5 is 40BD. So you end up withdrawing 40 on Sunday, for example. You spend it over the week, and next Sunday, withdraw another 40, and so on. If you spend all of it before Sunday, DO NOT move the withdrawing date earlier to make sure you always have money. Just try to survive without spending on the last day or two, or in extreme situation, withdraw a very small amount (eg, BD10). Its better to be broke one or two days in one of the weeks, than be broke a whole week or two before the end of the month.

At first, you might find that you spend the money faster than in a week. However, don't change the withdrawing date. Just try to keep at it, and after 2 or 3 weeks of doing it, you'll get used to it. Also watch your spending, remember that you have BD40 per week, and try to divide it up evenly over those seven days. When the month is done, you'll also still have a little bit of cash left in your account when your next salary is paid (remember, we divided the amount by 5).

Another good tip is to withdraw on the first day of the work-week, instead of before a weekend. Most people end up going out and spending most of their money on a weekend, so if you withdraw just before a weekend, a good chance is you'll spend most of the cash in those two days, leaving you with not too much to get through the week.

You don't have to stick to this exact spending schedule, but in my experience i've found out it works pretty well, and a few people i've told to use it have found it to be useful as well.

Again, if you think you need help with sorting out your exact budget, send me an email and we can discuss your situation in specific.


Anonymous said...

Ammar, you couldn't have chosen a better time to put up these posts.. just before the salaries..KERCHING!

Ammaro said...

lol :) thats great; SAVE UP!

I'll post some more on Sunday hopefully

Unknown said...

Thank you..You are a good soul!

Anonymous said...

I have been doing most of what you say for about 3 months but it's not working! HELP!