Budgeting methods and my one number budget

 

 

Creating a budget can feel overwhelming, but it doesn't have to be! I believe the main reason for budgeting is to help you achieve financial goals. By choosing a budgeting method that works for you, you can achieve financial stability and reaching your financial goals. In this post, I'll be going over how I craft my budget.  

This might not be a popular view, but if you don't have a money problem - like you are set to inherit fortune from your family or you never overspend your passive income, budget is not necessarily at all. Please go enjoy your life instead.

Making budget work starts with knowing your financial situation and what are your financial goals. In layman terms, assuming your goal is not to be in debt, the equation would be: 

[Total monthly income] - [Set apart for financial goals] = [The budget] 

Step 1: Consolidate your income stream

1. Salary or wages from a traditional job
2. Investment income from stocks, bonds, or real estate
3. Income from side hustle 
   
4. Rental income from property ownership
5. Business income from running a sole proprietorship or partnership

Step 2: Set up your financial goals 

Examples of financial goals 

1. Saving for a down payment on a house
2. Building an emergency fund
3. Paying off debt
4. Achieving financial independence.
   

Step 3: Choose your budgeting method 

There are several budgeting methods to choose from, each with their own unique approach to managing money. Some of the most popular budgeting methods include:

1. The 50/30/20 Rule: This method involves dividing your income into three categories: 50% for necessities, 30% for discretionary spending, and 20% for savings and debt repayment. This method is a great starting point for those who are new to budgeting and want a simple approach.
2. The Envelope Method: This method involves dividing your income into different categories and placing the cash for each category into an envelope. This method is great for those who prefer to use cash and physically see where their money is going.
3. The Zero-Based Budget: This method involves creating a budget where all income is allocated to expenses, savings, and debt repayment. The goal is to have a "zero" balance at the end of the month. This method is great for those who want a more detailed and in-depth approach to budgeting.
4. The Reverse Budget: This method is the opposite of a traditional budget where expenses are allocated first and savings are allocated last. The reverse budget allocates savings first, then expenses, and any remaining funds are used for discretionary spending. This method is great for those who want to make saving a priority.
5. The Value-Based Budget: This method allocates money based on what is most important to you. You prioritize your values and allocate funds accordingly. This method is great for those who want to make sure their spending aligns with their values and priorities.
   
6. The One Number Budget: This method is basically setting a number that represents how much you can and will spend in the month. This is great for those who love flexibility and living a less structured lifestyle.
   

Choose a budgeting method that works for you and your lifestyle. It's ok if you need to try different methods before finding the one that works for you. 

What works for me

At heart, I am a big fan of switched 50/30/20 rule with the One Number Budget. 50 for savings, 30 for wants and 20 for needs. By keeping my commitments extremely low, I kept myself stress free even during economic down times. I believe that if you're a family with two working income, living on one income is the best money advice you'll get.

That was entirely workable when I was out of the city. Now that I am back to the city center of KL, being a Japanese foodie and trying to keep up with the high living standards of my peers, it's impossible to keep a 20/30/50 budget. My spending is nearer to a 60 needs/30 wants/10 saving mode.

My One Number Budget for living alone in Kuala Lumpur is RM7,000. It basically means I can spend anyway I like as long as I don't exceed the number. One number budget works for me because am partly a rebel and I living alone with minimal commitments.  

 If I breakdown to where the money might go, about RM4,500 are fixed expenses (I feel expensive to live alone 😞), and the rest are fun money.

I keep all my expenses recorded in an app, and I occasionally checks the numbers. I like that my budget is very flexible, I can live on with little or a lot. Also, my budget assumes no additional income (like interest and dividends), so I would most certainly see a net worth increase at the end of the year even if I spend a bit more. ☃️