The what, why & how of budgetting

With the switch to english and following the introduction series I will present my budget as a means to understanding the what, why & how of budgetting. Read on to get a sense of how I spend my hard earned money and why budgetting is an important part of getting richer.

Intro

I will be posting my expenses in the currency DKK as this is the native currency of Denmark. Use a simple tool such as this to convert to your local currency. Staying true to the format from the introduction series this post will cover the what, why and how I budget.

Conclusion

The three parts of budgetting summed up:

What: A financial plan and continuous execution of said plan

Why: Budget to get richer through understanding your spending

How: Use Spiir or an equivalent budgetting app 

This is my budget for 2017 in all it’s glory, or lack there of:

Income 18.000 DKK/a month

Recurring expenses 6.000 DKK/a month

Misc. expenses 1.500 DKK/a month

Savings 1.000 DKK/a month

Investing 9.500 DKK/a month

Savings rate 58%

What is budgetting and what do I budget

The way I see it, there are two main aspects to budgetting. One is coming up with an actual budget, a plan for how much money to use. The other aspect is keeping the budget, continually surveying ones spending and preferably staying within the limits.

This means that budgetting is both a financial plan as well as a test on whether you are actually sticking to the plan. You have to make a spending plan and keep some sort of score on what you actually spend.

As in most parts of life it is important to be honest when budgetting. If you have spend more money than intended it is important to include this, and not simply look the other way. A budget should be an honest look on your finances. So in short a budget is:

A financial plan and continuous execution of said plan

Why should you care about budgetting

You should make and keep a budget because it is important how you spend your money. Since my personal goal is to achieve financial independence, I want to tweak my habits so that I can not only achieve financial independence, but preferably fast too. If we take a look at the get rich(er) formula it states that in order to get rich one should:

Earn more,

Spend less &

Invest the difference

It is difficult to get better at the second part, spending less, if you don’t know how much you spend and on what. Budgetting solves the how much and on what part, if you stick to it. This explains why I, and you should to, budget:

Budget to get richer through understanding your spending


Reklame

Reklame

Reklame


How to budget

In order to come up with an actual budget you first need to find out how much you spend. This part can take quite a while for some. Next you need to plan what you want to be spending, this is the actual budget. My budget for the year of 2017 looks like this:

Income                           18.000 DKK/a month

Recurring expenses       6.000 DKK/a month

Misc. expenses               1.500 DKK/a month

Savings                            1.000 DKK/a month

Investing                         9.500 DKK/a month

Savingsrate                          58%

It shows my monthly income, recurring expenses, miscellaneous expenses, savings, investing and a savingsrate. For others these categories might be different.

Income: This is simply my average monthly income

Recurring expenses: These are expenses I consider vital and can’t do without. It includes things such as rent, food, unemployment fund and insurance

Misc. expenses: Things I could better do without. It includes things such as clothing, gifts, travel, eating out, phone bill and subscriptions.

Savings: Every month I transfer a fixed amount of a 1000 DKK to a savings account

Investing: I strive to invest about 9.500 DKK every month

Savingsrate: Based on the above budget I should achieve a monthly savingsrate of 58% on average. It is a simple calculation: ((savings + investing) / income) * 100. This is a number I would like to increase, as it determines the length of time until I am financially independent.

In order to actually track whether I stick to my budget I use two tools as shown on the services page. I use and maintain a google sheet, which is currently in danish:

This is done in order to better calculate the savingsrate as well as controlling the various posts.

The other tool I use is Spiir, a danish equivalent to the american Mint. Spiir is incredibly easy to use and I maintain a budget solely from my phone. It takes me a maximum of 5 minutes a month and for most people Spiir alone would be sufficient. Spiir automates a lot of things, which is why so little time is required to use it. I believe a lot of people would be much better off if they budgeted, and Spiir makes that part easy. They ought to pay me for saying that 🙂 I use a spreadsheet as well, because I find it interesting, and in terms of personal finances I am not most people as this is also a hobby. So actually the how of budgetting can be summed up as:

Use Spiir or an equivalent budgetting app 

Conclusion

Back to the start of the post, the three parts of budgetting summed up:

What: A financial plan and continuous execution of said plan

Why: Budget to get richer through understanding your spending

How: Use Spiir or an equivalent budgetting app 

This is my budget for 2017 in all it’s glory, or lack there of:

Income                           18.000 DKK/a month

Recurring expenses       6.000 DKK/a month

Misc. expenses               1.500 DKK/a month

Savings                            1.000 DKK/a month

Investing                         9.500 DKK/a month

Savingsrate                          58%

As always comments are most welcome and I will do my best to answer all questions. You can follow or like the facebook page or follow frinans on twitter to get notified of new posts as well as interesting links and stories I stumble across. If you are interested in getting into Bitcoin you can sign up for Coinbase through my affiliate link, if you buy Bitcoin for a minimum of 100$, we both get a 10$ bonus. If you are interested in diversifying your investments further, then how about signing up for crowdlending through my Mintos affiliate link and gain an exclusive % on your investment.


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