Budgets 101

ALL YOUR BUDGETING QUESTIONS ANSWERED

1. What does a budget do?

A budget is the amount that you decide you will spend on your expenses. Setting a budget helps you plan your expenses so that you spend less than what you make.

Expenses <  Income 

2. How much should be my budget be?

Your budget should be less than or equal to your income. Make sure you consider any long-term payments that need to be paid with your income as well (this means your monthly repayment amount for loans as well. If you are making a budget for the future when you do take on a loan, you can calculate your monthly repayment amount for specific BML loans here on the Bank of Maldives website, or for general loans here on the Commercial Bank of Maldives website). Ideally, you keep your expenses less than your income and save some money as well. If you are budgeting to save money for a certain item, you can use the money left over each month for that. If not, you should still save some money for the future if possible. 

(Short-term expenses + Monthly payment of long-term expenses) <  Income 

To decide exactly how much your budget will be, you need to first be aware of how much you usually spend in a month. You can track your expenses using apps such as Mywallet which you can get on the Google Play Store or App Store. Mywallet lets you enter your income and your daily expenses. You can then see how much of it is spent on each category and decide how much of it is unavoidable and how much of it you can cut back on. For example, your rent might be something that you cannot change, but you will probably be able to reduce your expenses on food and entertainment. While food is of course a necessity, you may be overspending by constantly eating out.  

3. Why should I budget?

Budgets are useful for various reasons. They force you to create a spending plan that is affordable. By having a set goal, you are more likely to think expenses through and manage your money better. Sticking to a budget also helps you repay your debt properly, and can help you save money. By documenting your expenses, you also allow yourself to look back and see where you can make changes. 

4. How do I create a budget?

Creating a budget is incredibly easy now. Here are some templates provided on GoogleDocs - Monthly Budget 1 and Annual Budget 1.

There are also apps that you can use for this purpose - 

5. How do I stick to a budget?

• Make sure your budget is realistic - If you make your budget too strict, and you are a person who finds it difficult to regulate spending, you run the risk of getting fed up and giving up budgeting altogether. The beautiful thing about a budget is that it is up to you to decide what it should be for you, and how flexible it is. So make sure your budget is something you can stick to. You can tighten your budget as you go instead of jumping in headfirst when you are not ready. 

• Track your expenses - The reason why many of us overspend is simply because we do not realize how much we are really spending on things. Simply tracking your expenses and writing it down can help you manage your money better.

• Don't be too flexible -  While a budget is flexible, there does need to be some structure. Otherwise, the budget is pointless. Your money is valuable. You worked hard to get it. It might be okay to get a little treat now and then, but if they are constant or if they are expensive items you splurge on randomly, you are not really sticking to your budget. Trust me, it's not worth it to splurge on things if it just means that you will be stressing out later about not having enough money for the things you really need.

• Remember why you are budgeting - you are budgeting because you prioritize certain things (a bag, a holiday, a wedding...) and financial stability over constant splurges that will just make you happy momentarily.  Maybe you know that if instead of spending MVR60 on a coffee, 20 days a week, you save it and have MVR1200 extra at the end of the month, you would probably feel a lot better. You think about how good that will feel and what you can use that money for instead - to pay off a monthly loan payment without any worries, or to join the gym with your friends for example.