Creating a Budget: Three Apps for Budgeting and Saving Money
- PLAN Set goals and a system to achieve them
- DO Use an app for household budgeting
- CHECK Analyze your plan to check if it’s suitable for your goals
- ACT Optimize the plan further
(Updated on 2021/01/24)
Hi there, Kinkajuu here.
Have you received a paycheck and then counted how much money you could spend until the next payday?
I’ve done it, and I would guess many of my readers have too.
Many people are excited right after payday but quickly run out of money and have to scrape by until the next paycheck.
I used to feel that way. But now, I use budgeting apps to check how much money I have available until the next paycheck. They’ve helped me become able to save money.
Now, I’m able to set aside 20% of my salary for savings and investment. I’d like to share some tips on how to use these apps and budget effectively. This time, I’ll arrange my points into the PDCA format commonly used to create and improve processes.
First of all, you should set up a system of automatically transferring 10%-20% of your salary to a savings account. You can make the transfers manually, but some banks let you schedule them on a recurring schedule for no additional charge. If your company has an employees’ savings scheme, using that is also a good alternative.
After setting up your transfers to savings, that leaves you with 80-90% of your salary.
You may feel like it’s impossible to spare any money into savings, but most likely you can.
You should go over your expenses one-by-one and decide if they are really necessary. Using a budgeting app helps you analyze each of your purchases.
Additionally, writing a budget by hand can be very tedious, but apps can be easily set up in a matter of minutes.
Many budgeting apps will even connect to the user’s bank accounts and credit card history and automatically list each transaction.
I’m sure many people will be worried about the safety of such apps since they can access so much personal information. I felt so as well, but now I’m using three different apps for budgeting.
The apps I use are trusted enough to have been downloaded 2450 million times. The least downloaded of them alone has 500 million times. I think that’s a strong sign of the app’s safety.
I use the following three apps, all of which I can recommend.
Money Forward ME: 110 million downloads
Money Tree: 500 million downloads
Zaim: 850 million downloads
To set up the apps, you have to enter the information for your accounts – banks, credit cards, points, etc. It can take a little while to dig through your records and find all your information, but just try to bear with it through the setup.
After linking the apps to your accounts, they can track all of your spending and earnings so you don’t have to check every individual account.
Of course, these apps cannot track the physical cash in your wallet, but you can manually create entries in the app for cash to track those transactions as well. And if that’s to much of a bother, you can even input receipts automatically by taking a picture of them. You could keep all your receipts and then periodically scan them into your apps.
After using your budgeting app for a month, you can analyze where your money has been going.
Categorize fixed costs and variable costs
Fixed cost: a cost which consumers spend every month at almost the same amount.
E.g., your rent, insurance, utilities, and smartphone.
Variable cost: costs which are either not recurring or cost a different amount each month.
E.g., food, medical, clothes, and entertainment.
Categorize into necessities, spending, and investment
Generally, you can separate your expenses in three sections: necessities, spending, and investment.
Necessities are your essentials: food and such.
Spending makes up your nonessential expenses to have fun with or just waste.
Investments are your expenses that will eventually return more money than you spent.
Categorizing your expenses is sometimes very difficult because expenses can fit into multiple categories. For example, is drinking with friends a necessity, spending, or an investment? To resolve this, I’d recommend you focus on your main purpose of the expense.
If you just want to drink, then it is a necessity.
If you want to have a good time in a restaurant, it will be spending.
If you want to connect with friends and the get closer to them, it will be an investment.
After categorizing your expenses, you can go through them to see which ones you really need. Since it’s easier to think of your budget in percentages, I recommend deciding what each category should take up in your budget, like necessities X%, spending Y% and investment Z%.
If your expenses are taking up a lot of your budget, it may be better to look review your fixed costs. If there are variable costs which you spend almost the same amount on each month, you can look at them as fixed costs. In my case, I spend \30,000 per month on food and the amount doesn’t change that much, so I see food as a fixed cost.
Let’s consider how you can decrease variable spending and if it’s possible to move some of that budget into variable investments.
In my case, I found that insurance, cell plan, and rent are my big fixed costs. Surprisingly, some people spend a lot on subscription services (such as Netflix and Amazon Prime), gym memberships that they don’t often use, and going out to eat. Some expenses, such as streaming services or utilities, might be higher during the current pandemic while everyone is spending more time at home.
If you feel your expenses are too high, you can then decide if you can cut them out. First decide if something is so essential that you can’t live without it. Then, if your essential costs are still high, you will have to make some hard decisions on which of them you can get rid of – maybe something you don’t use anymore or only infrequently. You might also try to find cheaper alternatives for your essential expenses.
In my case, I used to go to a physical English school, I’ve since changed to an online one. During the covid-19 pandemic, online services are useful, safe and almost always cheaper than brick and mortar locations.
We can improve further on the budget. First, divide your expense into three buckets of 10-20%, 10-20%, and 60-80% of the total.
The first 10-20% will be saving.
The second 10-20% will be self-financing, where you can invest money into yourself.
The final 60-80% will be your living costs.
Investing in yourself is usually the least risky investment you can make and can get you bigger returns than other methods. For example, by investing in learning new skills related to your job, you might be able to increase your salary. Such investments can have indirect benefits as well, such as making for a better working environment.
Investments in yourself might to the form of learning work-related skills, or it could be visiting art galleries or museums. You might try learning how to cook, or you could try making new professional contacts.
When you have a goal for these activities, you can set the cost for them into the investment budget. But if you don’t have a goal, then they are non-essential spending.
How do you feel about this method of budgeting? I recommend you set aside your saving first, then check, analyze, and categorize your spending. Then, if you have money left over, you can divert some of it into self-investments.
I’ve been following this method for five years, and now I’m able to save 20% of my salary every month. I hope you’ll find this method helpful as well!