If you are a recent graduate, your salary can range anywhere from PKR 15,000/- to PKR 60,000/- depending on your degree, the company you join, the city you’re situated in and the market trends at the time of your joining date. If you are not a recent graduate, and have been earning for some time, there could likely be numerous responsibilities and expenses that you may be taking care of, depending on various circumstances.
In today’s difficult times, when inflation runs high and expenses are skyrocketing, it is difficult to manage expenses. Education, food, house rents, all have increased tremendously over the past years. For example, house rentals have increased by about 7%. A single housing unit costs a minimum of 10 to 13 million. This makes it difficult for the middle class to manage their lifestyle on limited income.
Budget is key to helping yourself because not everything can be purchased through a monthly pay cheque. Your financial road map is in your hands. Define your financial goals, define what your larger expenses or investments are, and then use our tips to follow your financial dreams!
Key Budgeting Techniques
Budgeting is a hot word amongst the older generations. If you talk to any one of them regarding budgeting, they would give you some old school, but solid techniques on how to budget yourself for a better tomorrow.
We have highlighted some key tips for you that would help you to budget yourself appropriately:
Cash Envelope System
Dave Ramsey, an American businessman, and best seller author, recommends a Cash Envelope System. Your mother or grandmother might have done this too, just ask them! Define your expense categories like house rent, grocery, school fee, personal expenses, etc. and then assign cash for each month into each envelope. Make sure you divide the amounts into weeks, and restrict yourself to this amount. All remaining amounts go to your savings. Instant Savings!
There are various online tools available to track, manage and evaluate your expenses, along with managing your budget. Some of these are free to use or have free trial versions up to limited days. Below are mentioned some:
- YNAB: You Need A Budget (YNAB) is a budgeting tool which can help you to create a monthly budget. It is based on carrying forward income method which means it first checks previous month income and pushes you to use last month’s income. It also gives you analytical and graphical dashboard view to view your finances.
Personal Capital: It is a free financial dashboard to track budget and investments. You can track your cash flows, returns, assets, dividends and investment costs. With its mobile apps, you can track your budget, expenses and investments over your phone. Moreover, it can help track your retirement fund too.
Maintain Separate Bank Accounts
Another popular method is to use separate bank accounts for regular use and another for savings. You can also automate a standing transfer order as soon as you receive your salary so that a chunk of income gets automatically transferred to your savings.
All of these techniques will fail if you don’t really know why you are saving these funds. Assignment of financial goals, financial literacy and learning your investment and saving choices can help you define your budget much better. Let’s learn a few tips to assign these goals, and calculate your savings. Three key tips to note:
- Define What Expenses You Want to Undertake
- Understand Where You Can Save Money
- Calculate Total Saving
Let’s make it more interesting:
Define Your Expenses
We already defined a few general household expenses during the Envelope method. Now, if you have some personal goals like buying a car, buying a house, going for Hajj or more, these become your key financial life goals, and your expense heads. If you don’t have goals yet, or if you are just starting out in your professional life, sit down and think through on what is it that you want to do if you had money. These become your key financial goals. Research the amounts it would take to reach these goals. For example, if you want to buy a house, or go for Hajj, what is the amount it would take you to reach this goal? Factor in the inflation. There you go. These are your key big financial expenses in life.
Understand Money Saving Tricks
Discount vouchers, tax saving techniques (not evasion!), and avoiding unnecessary expenses like interest on credit card bills, you can actually save money. Pay your bills on time to avoid surcharge, avoid delaying your credit card payments to avoid incurring interest charges, look into discount vouchers on your payments and bills to reduce your expense and look into tax saving techniques.
Some key tax saving options include:
- Are you a full time teacher? Tax liability up to 40% can be reduced if you work for a non-profit education or research institution recognized by HEC, or if you are a full time teacher or researcher, or employed by a government training or research organization.
- Do you have insurance, a mutual fund plan or have invested in pension schemes? You have the option to claim tax rebate up to 20% of your taxable income if you invest in any of these options. Check out this nifty calculator to calculate your tax savings.
- Remove all the taxes you’ve already paid in advance? Bet you didn’t know this one! If you use a mobile phone, then get a withholding tax statement from your mobile phone package provider. This amount can help reduce your tax liability. Same goes for advance tax payments on your car, and any other payments on which withholding tax is deducted (check your bank statement too!)
Calculate Total Saving
Look at all your expenses, create a budget, and then track your amounts on a daily basis, to see how much you end up saving at the end of each month. Transfer all the remaining amounts into your savings account at the end of each month. You can use a good tracking tool like WaveApps or a spreadsheet template, say from Microsoft Templates, and you can figure out your monthly savings as well.
Sounds tough but it doesn’t have to be. If you are passionate about meeting your financial goals, you can definitely make this work!