How to Make a Budget: Allocate Money

STEP2: ALLOCATE FUNDS

After you have identified "all" regular and non-regular expenses the next step is to allocate funds to each one of these.

How will you know how much should be allocated to each item?

In my case I combined two methods: First, I made an estimate, and then I monitored all my expenses for at least a month, and I made adjustments to the allocated fund accordingly.

Let's put some figures on our previous example based on a bi-monthly payday. Yes, it's easier if we will use per payday as time frame.

(1) God's work = P500/pd
(2) Savings = P1000/pd
(3) Rice = P500/pd
(Based on a one month monitoring)
(4) Food = P3000/pd
(Based on a one month monitoring)
(5) Mineral water = P100/pd
(Based on a one month monitoring)
(6) Electric (VECO) bill = P800/pd
(7) Telephone (Globelines) bill = P300/pd
(8) Water (MCWD) bill = P100/pd
(9) Magsy's tuition fee, and trasportation = P750/pd
(10) Belle's tuition fee, and transportation = P750/pd
(11) Leyan's share = P800/pd
(12) Family milk = P600/pd
(13) Family vitamins = P800/pd
(14) Home expenses = P600/pd
(15) Miscellaneous = P500/pd
(16) Emergency fund = P500/pd
(17) Recreation fund = P500/pd
Total = P12,000/pd

Suppose your take home pay is only P10,500, what you should do then?

When things like this happened to me before I had two good options: Either I find a way to increase my income to add P1500 (or more) or (and) I adjusted my allocation in order to slash down the excess amount, P1500 in our example. I can change the food to P2500, the savings to P500, the miscellaneous to P250 and the recreation to P250. As a general rule, I choose the expense items which I know I can live with so little of it or without it.

The other options are borrowing money to fill in the hole or simply closing our eyes and hope that the problem will go away. The first option is the one we wanted to avoid as much as possible because this will bore a hole into our savings, and later bury us alive in debt. The second option is analogous to choosing to get inside a car when you know that there's a bomb inside, and hoping it won't explode. Either option will sooner and later lead us into deep trouble.

Allocating the right amount of fund is as equally important as identifying your expense items so spend some time on this to get the most realistic figures.

Stay tuned for the continuation..."Where to Put the Allocated Funds?"

PS: For those who are in doubt please rest assured that I've already proven this system to work, so I am confident that this will also work in your case. Just be patient and give this system a try.

PS: If you want to know more how to save money, how to avoid debt, how to get out of debt, and how to make a budget then click HERE. This is the home page of my blog where I shared my knowledge and experience in budgeting, expense tracking, financial planning, and making a budget that is not only doable but I actually proven for 8 years. I also shared tips, which I actually use regularly, on how to save money, where to save your money, and in the process you will know how to avoid debt. Learning to avoid debt is easier than getting out of debt so I put more emphasis on staying out of debt. As a bonus, I also assembled information on how you can make your own financial planning and budget software. To get all this information for free, please click HERE.

PS: I am interested to know if you find this article helpful so please feel free to drop some comments.