Saturday, June 5, 2010

How to Set a Budget

Expense Sheet
To encourage recycling I am going to use last month's picture. Besides, to learn how to set a budget you will also need:
  1. A pen or a pencil.
  2. A notebook
  3. A calculator.
A budget is originated from the french word bougette which means a purse, yet we can define it as a forecast for the expenses you wish to control. Remember my earlier promise to give hints on how to save more? Today I will introduce one of those tips. Last month's homework (the expense sheet) must have given you an idea where all your money goes. Based on it we can estimate how much we expect to spend for the coming month, shall we proceed?
  • Transportation to work: taxi takes JOD 1.5 * twice a day * 24 working day per month = JOD 72 for transportation
  • Weekly groceries: JOD 15 * 4 weeks in a month = JOD 60
  • Eat out at weekends: JOD 10 * 4 weeks in a month = JOD 40
  • Weekly shirts ironing: JOD 2.5 * 4 weeks in a month = JOD 10
  • Once a week eat out at the office: JOD 7 * 4 weeks in a month = JOD 28
  • Cinema once in a month + pop corn (yummy!): JOD 10
  • Monthly Subscription to an association (or gym etc): JOD 20
Go ahead and add the numbers in red, the total would be JOD 240. We add a 10% to this number (as a margin of surprising expenses such as birthday presents). There you go; 240 + 24 = JOD 264, what does that mean? It means that you need no more than JOD 264 as an allowance! I suggest that you leave 10% of this JOD 264 (= JOD 26) as a backup for the last week of the month, so that you would not be broke - as most of us sadly are. Now for the secret recipe, the optimal budget would look something like this:
  • 50% of your net income should be spent as allowance (supposedly in our example: more than the JOD 264; reward yourself laborers).
  • 10% of your net income would go for charity.
  • The remaining part (40%) would be savings (full-throttle the savings to their maximum potential).
Superb! You now know how to set a budget plus you can use this same technique to control your vacation expenses or to financially manage your future enterprise, great ha?
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