Wednesday 16 April 2014

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How much do you save? A guide to budgeting - PART I

Posted by Unknown at 10:30 pm
Most people earns their income working for a monthly pay. Meaning to say, you only earn your income every end/middle of the month in the form of 'salary'.

Let's assume a scenario of Joshua, 36 years old, staying with his wife and a 3-year old son. At the end of the month, he'll receive a salary of RM 15,000. Table below shows how much net amount he'll receive after all deduction (unwillingly deducted!).


See how much we pay for tax??? Perhaps with this net salary of RM 10,772.75, he'll use it to pay for all his regular expenses. 

*If you want to find out more on your net salary, refer to this site:
http://www1.malaysiasalary.com/salary/salary-calculation-for-2014-in-malaysia.html 

Our local self-help books always assume small amount when they list out table like this. Forget it! Let's make this as realistic as possible. Expenses will be high in real life. 

Here's a summary of what he's gonna pay. 

TABLE A:


This poor fella Joshua will only have RM152.75 left for the month. And this happens every month. You might think this is an extreme case, but are you sure? This is happening to many people without them realizing! 

If Joshua did not calculate his expenses every month, he will never realize why he can't make any savings. All he does is to work and pay for expenses to make ends meet. He can't save more without knowing why...
What if rainy days do occur that he needs certain amount of cash immediately, where can he get those dough? Not from the sky of course.

Its a very sad case. But we can save this guy. How??

Its just a simple solution. Start budgeting. 

Based on what we can see from the table, there are certain variable cost we can reduce. (We can't reduce fixed cost like insurance, house & car loan since its been pre-determined). By reducing all these variable cost we can reduce the expenses after the equation. 
Let's reduce the variable cost according to Table A.
  1. Internet - degrade the Unifi plan to 5mbps - RM149
  2. Telephone bill - downgrade the plan. If he has an expensive data plan, reduce it - RM100
  3. Utility - less hour of air-conditioning, switch off lights that are not in use, etc - RM150
  4. Gym membership -  if he got a gym in his condominium, use it!  - RM 0
  5. Weekend entertainment - reduce the entertainment cost. Maybe outing every fortnight instead of every week - RM800
  6. Weekday food expenses - if he spend RM30 every day. Cut it to RM20 - RM400
  7. Divide a 30% of house loan repayment with his wife - RM1540.70
Good gracious. After going through all this. let's recalculate how much he spend:


TABLE B:

Cutting down his expenses he can save an amount of RM1913.05 exponentially! 

Normally we don't see how much we spend until we point it out clearly in paper. This is why most of us do not have enough savings!

 "If we just spend a little bit of time to plan for monthly expenses. It helps us more than we can imagine."
Next topic will be on 'how to do no-brainer budgeting' every month. 

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