MANAGE YOUR FINANCES

The key to successful budgeting is deceptively simple - spend less than you earn.

But that is often easier said than done because you can't anticipate some expenses that may crop up unexpectedly. If you actively adhere to a budget however, these sorts of eventualities can potentially be addressed with less stress than would otherwise be the case.

Setting goals with budget planning

• Group financial goals into three time horizons - short-term, mid-term and long-term.
• Ask yourself: What do I need? What do I want?

Your answers to these questions will help define your goals. Once you know what you want, you can begin to budget with a purpose.

Short-term budget goals are those that you typically want to achieve over the next year. These may include paying off your credit card bills fully or saving for a vacation.

Mid-term goals are those you want to achieve over the next two to five years. For example, you may want to save for a down payment on a new house or renovate your kitchen.

Finally, long-term goals are those that take more than five years to reach. Typically, these have to do with your retirement plans or for your children's future education.

Keeping your budget

• Record the purpose and amounts of your expenditure for one month.
• Acount for everything; it may be tedious but doing so will give you a database of information about your spending habits.
• Gather all your receipts and include your credit card bills and loan repayments in this exercise.

As the days go by, you will be able to add up all your tracked expenses and compare it to your income. Remember the key to budgeting is to spend less than you earn. Your analysis will show if you are spending more than you earn and what expenses you may have to cut back on.

Evaluate what you consider as necessities and get rid of the luxury items. For example, instead of going out for lunch, pack food from home, or buy coffee from a hawker centre instead of from the fancy coffee outlets. Sometimes, luxuries can be disguised as necessities, and it's up to you to weed them out to help ease the strain on your budget.

If you are spending less than you earn, you are in good shape. You can use the extra money to pay a greater chunk of your debt, or increase your savings.

As a general rule of thumb, your debt repayments, including those on your credit card, should not exceed 40-50% of your take-home pay. If it does, you could be headed towards that danger zone where it is very difficult to rein in your debt.

If you're unsure that this may be happening to you, here are some warnings signs.

• Regularly spending beyond your budget
• Living from payday to payday
• Being unable to meet large one-off expenses like household insurance
• Always paying only the minimum repayments on your credit card bill each month
• Not knowing how much your total debt is
• Being near, or at, your credit card limit – especially if you have more than one card
• Consistently paying bills late
• Hiding your debt situation from your spouse or partner

If two or more apply to you, it could be time to cut back on your spending and reduce your debt.

Getting your finances under control is not always easy and it can take time. But there are several targets you can set for yourself that will put you in greater control.

Here are some pointers:

Each month, try to reduce a different spending category by 5-10%

For example, take public transport instead of driving on some days.

Start A savings account for large, infrequent expenses

If you spend less than you earn, your surplus can be allocated to expenditure on luxury items.

Charge items to your credit card only if you are sure you can afford to keep up with the monthly repayments

A credit card doesn't make you richer. It facilitates the more convenient use of money that you already have.

Treat a credit card balance like you'd treat a bank loan for the same amount

A credit card balance is essentially an unsecured loan which can get bigger very quickly on the back of interest charges. The best option is to pay your credit card dues fully so that interest charges don't kick in. Even if you decide to have an outstanding amount on your credit card, you must have a plan to repay it.

Avoid the "sale" mentality

When you buy a VND 1,000,000 item on sale for VND 1,200,000 you don't save VND 800,000. You spend VND 1,200,000. It's only a deal if you need it and can afford it.

Track your spending and income

Monitor how much of your hard-earned money you are spending to make sure you don't sink into debt.

Try to increase your income if you can

Is a second job possible? Can you sell something you no longer need?

Reward yourself

Working your way out of debt is a long, hard task. It's also a big accomplishment. Find inexpensive ways to celebrate your progress.