Let’s face it we all feel good when we have money in our pocket. We end up going out with friends to have dinner at a restaurant or have breakfast at a café, at times even fight for the privilege to pay for everyone. We may even purchase the latest iPhone that we want, but most likely don’t need. Then suddenly we run out of money or come up short on cash to pay for our daily essentials until the next pay day. By this time, we start to get stressed and may result to borrowing money from family and friends because there is no other way to make ends meet, especially since the banking sector does not offer overdraft facilities to everyone. Even when they do, the interest rate or handling fee (as they call the term in Islamic Banking), be so high you may become more in debited than you first started.
This has happened to all of us. Let’s be honest. And it is OK, but the only way we can manage our money more effectively, is by learning to budget.
Here is our simplest but most effective way to budget.
1st STEP : Understand your income and essential spending:
Take a piece of paper and pen – or open a spread sheet on Excel and make two lists: INCOME and EXPENSES.
2nd STEP: Write down all your INCOME – this is everything you have coming in each month. This could be or include:
- Salary from part-time or full-time job
- Money from parents
- Government support
- Investment
- Sponsorship if Student
3rd STEP: On the other side write down your EXPENSES – this is likely to include but can change with different circumstances;
- Food and drink
- Transportation
- Rent
- Household Bills (electricity, water, service charge…)
- Clothes
- Child Pocket Money
- Tuition Fees / School/College/University related expenses for you or your children
- Debts Re-payments
4th STEP: Now add to your EXPENSES everything you spend money on that you like but do not really need. Such as;
- Entertainment (including eating out/going to a party or concert/cinema and so on)
- One-time expenses (Birthday gifts, Eid or Mothers and Father’s Day ..)
- New products, such as clothes, shoes, household products, phone, laptop, etc…
- Vacation
5th STEP: Now that you have written down exactly how much money you get on a monthly basis and how much each item costs you in your expenses, it is time to do some maths. Maybe it is better to get the calculator out to be precise!
Subtract your total outgoings or expenses from your total income. How did you do?
If the answer is you are in minuses this means you cannot cover your expenses with your monthly income. So, you have to go back and look at the list to find where you are spending too much money and if this can be changed?
Tips on how you can cut spending costs
- Do not buy items that you like but do not need on a monthly basis.
- Cut down on your entertainment activities to once or twice per a month.
- Shop at different supermarkets where the prices are lower with more offers.
- Take advantages of loyalty discounts to lower your spending and entertainment costs.
Track your spending
It is best to keep electronic records of spending to help you stay organised. You should track your spending for instance through your t NassPay Mastercard app to ensure you stick to the budget you have set yourself. This way you can notice if your plan is not working and adjust it accordingly.
Don’t forget…
- Set yourself limits/allowances for each item
- Always put a bit of money on the side for unforeseeable costs