Creating an essential-only budget

Having to deal with numbers and keep track of the money that comes in and out can be overwhelming, especially during tough times such as the COVID-19 pandemic today. Budgeting and planning have long been considered challenging, but with changes and uncertainties looming around, it’s important to keep track of your finances and cut down on expenses. Once you know where to begin and what to do, the process will become easier than you think.

Follow these steps to get started:

Determine your income

COVID-19 impacted more than business operations. To avoid laying off employees, several companies resorted to temporary pay cuts. If you’re one of the affected employees, it’s important to take your new income into consideration. Assume your salary was cut by 20%, this would mean that your expenses have to be reduced by the same amount, and sometimes even lower. If your income hasn’t changed, consider a certain percentage you’d want to refrain from using -or maybe save in an emergency fund — and cut expenses accordingly.

Map out your expenses

Now that you’ve figured out your new income, it’s time to look at your overall expenses. While it might seem overwhelming at first, categorising will help you get a clearer picture of what to do. Think of last month’s expenses and group them into the below categories:

Essentials: This can include the electricity bill, monthly groceries, bank payments, gas — basically any fixed monthly fees.

Memberships and subscriptions: A Netflix subscription or a gym membership go perfectly well in this category.

Miscellaneous: Think non-essential expenses here: restaurant bills, shopping sprees, trips to the Cinema, take-out etc…

Cut back or pause expenses

The first thing you should focus on is the miscellaneous category. If you usually go out twice a week or order takeout, consider opting for a home cooked meal instead. You don’t have to steer clear of restaurants, simply minimise the amount of times you order from them.. For memberships/subscriptions, decide which of those can be paused and others that can be cut. For example, you might want to rethink a gym membership during the pandemic or pause it for a while and do your workouts from home.

Create a spending plan

A spending plan is another term for budget. This will give you control of your spending and allow you to control your expenses. After you’ve figured out what expenses you need to pause, cut back on, or cut off completely, subtract the remaining expenses from your income. The end result is the money you’ll be left with. If you’re not satisfied with the amount, review your expenses, and check where you can cut-back further.

Save money

If the end amount satisfies you, consider saving this money. You can either use it as part of your emergency fund or decide to invest it or deposit it in your savings account. Cutting down costs is important, but saving money gives you financial freedom and protection against emergencies.

Budgeting was never meant to be tough. Remember to take it one step at a time, and you’ll be able to lower your expenses and save money all at once!

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