Step 4: Creating Budgets in Pearbudget

After figuring out which expenses go into which categories on the Start Here tab, scroll down. Pearbudget allows you to create budgets for each expense on the same page. How do you calculate a budget? Unfortunately, there’s no exact science to this. The easiest way to calculate a budget is to estimate how much is spent on a particular expense per day or per week and then multiply the figures accordingly.

Here’s how I budgeted my monthly lunch expenditure:

Plan: to spend $6 per working day on lunch.

$6 x 20 working days = $120

Hence, my lunch budget for the month is $120.

Of course, you can also give the budget a little padding to allow yourself an indulgent treat now and then. For people who are new to a frugal lifestyle, this really helps ease the transition. I usually give myself an extra allowance of 10 – 20% more a month:

$120 x 120% = $144

Hence, my lunch budget for the month is $144.

Do this for every expense until the sum of your little budgets comes close to your monthly income.

Tip: If you’re budgeting for more than what you earn, it’s the most basic sign that you’re on the express train to personal debt. It’s like eating more calories than you burn and wondering how you stopped fitting into your skinny jeans.

Step 5: Entering Your Daily Expenses into Pearbudget

Here’s the easy part: take 5 minutes a day to enter your expenses into the corresponding date and month of that expense. You’ll find that the spreadsheet automatically adds up your daily expenditure and calculates the difference between what you planned to spend and what you really spent.

Tip: I suggest entering your expenses daily or at least every few days or so, in that way you’re constantly aware of your expenditure. If you discover that you’ve been spending too much daily, quickly adjust your spending before it’s too late.

Step 6: Analyze

After you’ve tracked your expenses for a month, you’ll start to spot spending patterns that can be controlled. After a month, I discovered that I was spending too much money on clothing and quickly reduced my shopping budget by 40%. Sticking to it is a whole other matter of course.

Pearbudget also includes a handy Analysis tab to study your spending patterns over a course of a year. Incredibly handy.

Conclusion

In my enthusiasm, I wrote three posts on budgeting in one day! I hope this helps anyone who would like to learn more about budgeting as a form of money management. Comments and thoughts are always welcomed.

Step 2: Download Pearbudget

So anyway, after taking note of my expenses, I realised that I didn’t possess the proper knowledge of designing complex spreadsheets with fancy macros and widgets to analyze my cash flow. That’s when I came across Pearbudget, a nifty spreadsheet created by Charlie Park for money morons such as myself. The wonders of the internet!

Download Pearbudget for free here.

Tip: Pearbudget can be used on any spreadsheet program, but I chose to save mine on Google Docs, so I can access it from virtually any terminal with an internet connection.

Step 3: Understanding How Pearbudget Works

The great thing about Pearbudget is that it’s easy to grasp after using it a few times. The most important thing to understand is that there are different types of expenses.

If you open the Start Here tab in Pearbudget, you will see that expenses are broken down into three categories:

1. Regular expenses: These are expenses that you pay every month in regular fixed amounts, e.g. rent, phone bill, mortgage, car loan, etc.
2. Irregular expenses: These are expenses that you pay a few times a year at irregular intervals, e.g. gifts, medical bills, haircuts, etc.
3. Variable expenses: These are expenses that you pay every month, but can be budgeted differently from month to month, e.g. groceries, drinks, dining out, etc.

Tip: Focus your budgeting efforts on variable expenses and your bank account will thank you.

In the final installment, I’ll explain how to input the expenses you dutifully jotted down into the Pearbudget spreadsheet for budgeting success!

Why? By tracking my daily spending and making budgets, the process helped me learn more about my horrible spending habits than ever before. I believe this simple awareness gives me the knowledge to plan my goals, which is to cut down on spending in various areas, hence freeing up extra money for savings or investments.

Step 1: Recording My Expenditure

The tedious part about budgeting was the initial hurdle of taking down every single amount I spent, from the 70 cents on the daily paper I read during lunches to the $10 on the occasional pint of beer. Friends mocked me for being excessively meticulous, “Couldn’t you just spend less in general?” Perhaps. But I believe proper financial tracking nurtures some form of discipline which admittedly, I don’t have. And if I didn’t track my spending, I’d be throwing my money at all sorts of frivolous things like drinks. Recording my expenses acts as a good wake-up call.

Tip: I suggest using a small portable notebook that you can carry in your handbag or pocket, or even a piece of notepaper that you can slip into the bill compartment of your wallet, so it’s always within easy reach. Personally, I record all my expenses in the notepad on my mobile phone.

Here’s an example of a daily expense log:

6/7: lunch $5.20 + dinner $19.90 + drinks $10.20

It’s as simple as that.

Because I tend to forget, I try to log my expenses immediately. In fact, it has almost become reflex to whip out my phone and punch the numbers in two seconds after handing over my money.

Well, now that you have these figures, what are you going to do with them? Introducing the awesome (and free!) budgeting and expense-tracking spreadsheet: Pearbudget.

In my next post, I’ll talk about getting started with Pearbudget. It’s really easy!

A year and a half later, I realised I was committing myself to a paycheck to paycheck lifestyle. Imagining that I’d be in my 30′s living the same way without a home or a business or any form of assets to my name scared me to death. Things had to change.

Why am I starting now?

Pros

On the positive side, I am in a perfectly good place to start on the path to financial freedom, because:

• I am debt-free with no crippling student loans or credit card debt to hold me back. I was fortunate that my dad believed in providing a good education for his children and he was willing to finance my entire education and at a UK university no less. (The exchange rate then was approximately GBP1 = SGD3. He constantly reminds me that I owe him a BMW. Do the math.)
• I am relatively low-maintenance, in the sense that I have few extravagances. On average, I get a haircut only 2 – 3 times a year, I wear basic makeup and my idea of shopping is thrifting on eBay or at garage sales. I still have to learn to give up a few other luxuries though such as cigarettes and drinks. Hmm, I realised this makes me sound like I go out looking like a troll. Let’s just say that I don’t scare little children on the street.
• I don’t own a car. More honestly, I can’t afford a car. But the great thing about living in Singapore is that I don’t need one, the public transport system is efficient enough to get me to any destination on time with just a smidgen of good time management. Gas? Road tax? Parking? Depreciation? I don’t have to deal with any of it, or pay.
• I have goals. Gimme a break, I hear you say, everyone has stinking goals. I know, but I’m starting small in manageable, conceivable amounts that don’t make me break out in hives at the thought of them.

Cons

At the same time, it’s going to be tough, because:

• I recently quit my job to earn a living as a freelancer. The current gig pays me a decent sum, but my contract ends in Dec ’07 and I don’t know when the next gig will turn up, i.e. an unsteady paycheck. It’s an extremely liberating, yet extremely scary path to tread.
• I have no discipline. It’s one of my flaws and I know it’s going to be an uphill battle to change my mindset. I enjoy my indulgent lunches and shopping on eBay and it’s too easy to think, “just this once.” It NEVER is.
• I am a smoker. Cigarettes in Singapore are ridiculously taxed to discourage idiots like me from picking up the habit. My habit amounts to a pack a day (it’s brutal, I know). At $10 a pack, it means I’m throwing away $300 a month to this filthy habit. That’s $3,600 a year! I’m trying to cut down and ultimately quit, but it’s difficult one to kick.

Goals

As I said, I’m taking this in small, manageable steps that will hopefully grow into bigger goals. My goals for 2007 are:

• To put $1,000 into a savings account every month. By year end I should have $6,000 in the account not including interest.
• To invest my Central Provident Fund savings. CPF is the Singapore government’s form of retirement savings that’s locked in until I turn 65. A percentage of my paycheck is deposited into a CPF account every month along with an employer’s contribution. The CPF investment scheme allows me to invest all of that money in a wide array of investment products. Subtracting 26 from 65, I have a good 39 years to allow my investments to grow over time. However, now that I’m freelancing I won’t have a regular monthly contribution, so that’s something to be figured out.
• To learn more about investing in general, so I can make a informed decision when I am in a position to make some serious investments.
• To quit smoking, which would translate to savings of $3,600 a year!

There, I’ve laid bare my sad state of affairs. Wish me luck!