[13 April] - Income & Expenses: A Balancing Act

There's more to Personal Finance than just 'Budgeting'.

In order to manage your personal finances, you need to understand the importance of managing your income and expenses. A budget doesn’t get you anywhere if you don't know how much and where you spend each month.

The difference between income and expense is simple: income is the money you take in and expenses are what you spend money on. INCOME - EXPENSES = NET SAVINGS

Your net savings is generally your income minus all of your expenses. If that number is positive, you won't be running out of money before the end of the month.

If it’s negative... keep on reading to find out the steps you need to take.

The Trick Is To Create Predictability

First, take stock of your income and expenses:

Monthly Income:

How much do you usually expect to receive? Income sources include:

• Main job income
• Side hustles
• Profit
• Dividends
• Rental income
• Allowances/bonus

If your income varies month to month, calculate the average amount.

Monthly Expenses:

How much do you expect to spend? You can do this by listing down every single expense you make in a month. Break up monthly spend into essential (‘needs’) and non-essential (‘wants’) categories like:

FIXED (expenses that pretty much stay the same every month)

• Housing
• Transportation
• Utilities/Bills
• Food
• Subscriptions/memberships
  

VARIABLE (expenses that can change over time, depending on the circumstances)

• Dining out
• Shopping
• Vacation
• Gifts / Donations

This may sound tedious, but once you’ve tracked your expenses 2-3 times you’ll be able to gauge pretty well what your monthly expenditure is. 

Determine Your Savings

INCOME - EXPENSES = NET SAVINGS

If your net savings is negative, you need to focus on turning it into a positive figure. Do this by:

• Spending less money
• Making more money

Generally, it’s easier to start with spending less money. Take a good hard look at your monthly expenses - is there anything that can be cut down or eliminated? Start with your WANTS first.

For example, while paying for the internet is a NEED (you need it to work from home or for your children to do their homework), paying for a subscription to Astro or Spotify is WANT - you only use them for entertainment purposes. 

However, you may have already cut down on all your non-essential WANTS. If necessary, find ways to lower the cost of your NEEDS too, like going for a cheaper internet plan or negotiating your bills down.

Once you’ve done all you can to spend less money, look into making more money by picking up a useful, sellable skill or selling items around the house you no longer need to make some extra cash.

Make Saving Money Second Nature

💡 Pro Tip: put 'saving' down as an 'expense'. Here's why - when saving becomes an expense, you’ll pay yourself on time every month without fail, just like you would any other recurring bill. 

Better yet, set up automatic direct debit transfers into your savings account a day or two after payday. You can do this with your bank or you can set it up on the Pod savings app to automate your savings and save without giving it a second thought.

If you don’t think you’re making enough money to save any, remember that even a small amount counts - RM 50, RM 20, or RM 5. Once you’ve built up the saving habit, it will be much easier to keep at it and grow it, even more, when your income increases in the future.

Managing your personal income and expenses can feel like a full-time job. From receipts to tax records, it's important to stay organized if you want to save yourself time and worry in the future. And even if it seems overwhelming at first, the important thing is to take the first small step forward.