A budget plan serves as a roadmap for allocating your income. It enables you to monitor expenses and exercise caution to prevent overspending. By identifying the intricate flow of your earnings, it provides clarity on where your money goes from the moment it is received.
Personally, I find budgeting to be the most challenging aspect of financial management. It demands discipline and often induces headaches. Can you relate? How diligent are you with your budgeting? Have you consistently adhered to a budget, or do you simply purchase anything without considering a budget?
In this article, I'll be sharing a straightforward five (5) components of budget plan. This plan assists me in tracking my liabilities and expenditures, ultimately minimizing or eliminating unnecessary spending.
Prepare to delve into the world of budgeting and feel inspired to take control of your finances!
5 Components of a Simple Budget Plan
1. Source of Income
Salary is my primary source of income. Most of the time, it's the sole means to cover rent, utilities, food, personal needs, etcetera. Somehow, it's sufficient to meet my monthly obligations. Well, it requires careful budgeting.
To increase my income, I engage in side hustle. I use my passion as a reference to land another source of income. With this, my deep interest in writing has led me to freelance some services from it. If you're into writing as well, here are some of my writing gigs that you can start too and make an extra income from it.
Content or Blog Writing - this is where I'm writing for a specific market through social content like Facebook and blog post writing with SEO basics. When it comes to blog writing, your name appears as the writer since you'll be writing directly to clients' blogs or websites.
Ghostwriting Articles - pertains to writing without exposing your name as a writer, usually you just need to put your write-ups in a Word document or Google document and submit it to your client.
Ebook Creation - based on the first experience, I did this for a lead magnet purpose where my client needed more visits to his blog site.
Relative to the above-shared passion, discover and explore yours. Monetizing your passion adds up your income and eventually helps your budget. For more guides on making extra income, check this blog.
2. Mandatory Expenses
Are you working for a private company?
For private corporate employees like me, mandatory expenses are government contributions such as SSS (Social Security System), PHIC (Philippine Health Insurance Corporation), and HDMF (Home Development Mutual Fund), which the employer deducts the employee's mandated share of contribution from respective salary. Also, for those entitled to necessary taxes, there's a withholding tax compensation as part of mandatory expenses.
These mandatory expenses are based on respective salaries except for HDMF which has a general minimum of Php 400.00 shared equally by employee and employer.
3. Monthly Bills
Another component of my simple budget plan is the consistent obligations or the so-called monthly bills. From the perspective of living independently as a single professional near the workplace, rent, food, electricity, water, and internet are the monthly bills to allocate from the income earned. Indeed, these expenses exist that you are obliged to pay or budget regardless of how much your income is.
4. Savings and Investment
A simple formula for handling finances shows like this:
Income - Savings = Expenses
If you are tithing, it would be like this:
Income - Tithes - Savings = Expenses
Sounds familiar? Or a little bit opposite?
To be honest, for now, my savings comprise an emergency fund and a retirement fund. I plan to separate them later on when my side hustle becomes more consistent. This is called budgeting with a budget. The bottom line is that setting aside a portion of money for savings must be a top priority for single professionals.
In my late 20s, getting insured was a wise decision that helped me become financially responsible. In line with this, I personally advocate for financial literacy among other single female professionals, especially those in their early 20s who are just starting their careers. This advocacy is part of a purpose-driven investment.
Furthermore, I started to invest with a low-budget capital. Did you know that you can invest with only Php 500.00? The Modified Pag-IBIG II is my low-budget investment, which you can begin with a minimum of Php 500.00 if you are a beginner in investing, and you can grow it later on.
5. Allowances and Wants
Allowances pertain to petty expenses like transportation when going somewhere during my free time and meals whenever I need to dine out. Furthermore, these expenses only consume a small portion of the budget since my workplace is just within walking distance and most of my go-to places are near my residence.
Your wants may seem unnecessary, right? Well, you're partially correct, but I include them in my budget plan. Why? Because I believe that after hard work, I deserve a reward. And I think that's perfectly fine. What isn't okay is neglecting other needs just to fulfill your wants. Be cautious about justifying your wants in the budget plan. I'm still working on finding the right balance. May you too.
Extra Components
Since I want you to benefit from this simple budget plan, where I shared the five main components along with relevant takeaways for each, I will be adding two extra components.
The first is a section for Remarks on income versus listed expenses. It shows the variance between the budgeted amounts you set and the actual amounts spent. It will help you decide on a strategy for the next month's budget plan, such as eliminating certain expenses or finding an additional source of income.
The second addition is an Action Plan. Here, you can note what needs to be done to improve your budget for the next month. This part is based on the remarks for the budget versus actual amounts for the current month. The action plan can explain any overspending or indicate if you have surplus funds at the end of the month, which could be used for investments or other purposes.
To summarize, my budget plan is simple, from a single professional's perspective. It consists of 5 main components which are the source of income, mandatory expenses, monthly bills, savings and investment, and allowances and wants. Additional components are remarks and an action plan.
Start creating your budget plan from the components shared earlier and make it personalized according to your current needs.
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