Dubai: If you’ve never built a budget before, the thought of tracking all of your expenses and sources of income can seem like an immense task.
While the act of tracking your everyday expenses might seem tedious and hard to keep up with, there are a number of applications that make it easier for people to understand where they should save or spend.
Some budgeting applications in the UAE that can help get your finances in order include 'Emma', 'Fudget', 'Wally', 'YNAB' (You Need A Budget) and 'Yolt'.
Budgeting tools can be tedious
Budgeting tools requires users to manually input all of their expenses and income. While this may be time-consuming, doing so can help you understand exactly how you’re spending your money each month.
But what if you can’t find a budgeting application that you best suited to your needs and you prefer to manually enter your transactions or control the layout of your budget?
Making your own budget spreadsheet is still a common practice for people paying off debt or just trying to spend less than they make.
Why you need a monthly budget planner
Tracking your income and expenses can be as simple as budgeting every month’s salary or as extensive as tracking several years of transactions.
However, experts recommend starting small and getting more complex as you improve, while reiterating that budgeting isn’t something you’re good at as soon as you begin, but rather it’s a continual lesson.
If you don’t have access to Microsoft Excel, you can use the same functions in OpenOffice Calc or Google Sheets, and access your budget using one of their various applications.
Understand what a zero-based budget is
A zero-based budget means that you make a plan for every single dirham that you earn, before the month starts.
Typically, you might plan out all your expenses and then have some money left over. Don’t leave that money unbudgeted. Plan for it to go to savings or toward your debt, and then you’ll have a zero-based budget. Any outgoing money is considered an expense, even extra debt payments or savings.
Remember, this does not mean you are spending all your money. We are simply including all outgoing money (bills, spending, savings, extra debt payments, etc.) in our expenses so that every dirham that comes in, goes out instead of sitting in your bank account tempting you to spend it.
Setting up your budget
1. Write in your income. Using your budget spreadsheet, write down your expected income under a section titled ‘income’. List each salary out separately in the sections provided.
2. Create categories. Moving down to the expenses section, write down all the categories you typically spend money in. Include categories for all bills, spending, debt payments, and savings.
3. Estimate your expenses. Now that you have categories, list out the amount you expect to spend in each category in a column titled ‘budgeted’. Keep reading for how to determine how much to plan in each category.
Common Budget Categories:
Fixed Expenses: Rent/Mortgage, Auto Insurance, Health Insurance, Life Insurance, Other Insurance, Subscriptions, Mobile Phone Bill, Utilities and Electricity (DEWA) and Internet.
Variable Expenses: Groceries, Restaurants, Fuel, Personal Allowance, Clothing, Entertainment, Household, Haircuts/Grooming and Gifts.
Miscellaneous Expenses: Write in a category for any expense unique to the month you are currently budgeting for that doesn’t tend to repeat.
Determine how much to budget in each category: After you printed out your last 3 months’ of bank statements, go through every transaction and label it with the budget category it falls into. Then, add up the total of each category and divide it by three to get the average spent in each category over the last three months.
Here’s an example: If you spent Dh2,475 spent on groceries the last 3 months; Dh2,475 divided by 3 months, equals, about Dh825 per month spent on groceries.
Determining where you need to cut back
Next, determine where you need to cut back. If you are struggling to make ends meet or spending more than you make every month, look at the categories you feel are the least essential and where your spending is the least controlled.
Typically, you’ll be able to make big cuts in your restaurant, personal spending, groceries, entertainment, and miscellaneous categories.
Try cutting back at least 10 per cent in each one and setting that as your new budget. Don’t hesitate to cut back more if you know you’re spending way too much.
Here’s an example: We would cut the Dh825 per month we have been spending on groceries back by 10 per cent for a new grocery budget of Dh740 per month.
Now you have a budget set up with all the categories you’ll need, and you’ve made a plan to cut back a bit going forward.
Let’s take a look at a sample budget and put all of this information into practice. Scan through these numbers and then we’ll break them down.
Sample zero-based budget
Next, let’s break this down to make sure we really understand what we’re looking at.
Dh3,200 is what you actually earned, as opposed to the expected amount being Dh3,000. If you have a fixed salary the amount will be the same. List extra debt payments or saving amounts as an expense (in this case, it’s Dh1,557).
When totalling your entire expenses, it will come to Dh3,200 (same as your salary income). Although nothing (Dh0) is left when factoring in a zero-based budgeting, since you already put Dh1,557 towards extra debt payments or savings, you’re on track.
Balance your budget each week to stay on track
It’s important to balance your budget regularly to make sure your budget is on track.
Note: If you have any pending transactions, they may not match 100 per cent. You will have to do some math to figure out what your bank balance would be after all the pending transactions go through.
Example of bank account and budget matching
Once you get paid and begin to spend money during the month, use a spending tracker (expense managing mobile applications) to keep track of each transaction, both incoming and outgoing.
To balance your budget, pull up all your materials and start filling out your budget spreadsheet’s ‘spent’ column with how much you’ve spent up until that point. Your spending tracker will itemise each purchase you’ve made in each category. Your budget spreadsheet will only show the totals.
Now you can see how much of your money you’ve spent.
How often should I balance my budget?
Financial planners recommend balancing your budget regularly, preferably weekly. If you go much longer than that, you may find it harder to balance because there will be more transactions to make a mess of it.
Why you should balance your budget a day before pay day
Make sure you always balance the budget the day before you get paid again. Zero out your account by sending any unspent money toward your main goal, e.g. debt payoff or savings. Make sure your bank account doesn’t actually hit Dh0, though. Leave a buffer in there or wait to actually move the money until after you’ve gotten paid again.
Will you need that money to cover your expenses for the next pay period? If so, let the leftover money roll over into the next pay period to cover your expenses. Mark the leftover money as income on your budget for the next pay period so that your master budget will match your bank account. Only let it roll over to the next pay period if you know you’re going to need it for an upcoming expense.