Budgeting tactics: Budgeting in 3 proven steps

Budgeting is the most important skill and foundation for financial success. It is the backbone of your personal finance framework and in this guide, we will discuss the steps to get this right.


You are here because you are trying to find out how to better manage your cash and finances. Or maybe you have read the Mastering the Art of Personal Cash Management: 3 Guides to Nail it. In either case, you know that personal cash management – or specifically budgeting is the most important skill and foundation for financial success. It is the backbone of your personal finance framework. I will even add and say it determines how fast your progress to financial independence.

That said, despite its well-understood importance, I know that it is often too basic but yet requires tedious efforts to get started or manage it properly. I had been in the same position some years back.

After some trial-and-errors and time wasted, I am now doing it consistently for years. In this guide, I will share my strategy of budgeting where it is as effortless as possible but yet it retains its benefits of achieving your financial goals.

What is Budgeting?

At its core, it is the process of tracking your cash flows, creating a plan and then executing the plan. Putting it into a sequence of points:

  1. Tracking your cash flows (incomes and expenses)
  2. Creating a budget (how you intend to use your money)
  3. Execute consistently

To reiterate, the numbered points are in sequence. It is important to take it one step at a time.

I know there are lots going in your head. You have probably heard of the 50-30-20 rule, envelop method, zero-based budget, whatever-goes method (I’m kidding*), etc. How are these going to fit in? Throw these out of your head and you won’t need it for now.

woman utilizing paper bags into special container

These are good frameworks but I find them too complicated to do consistently.

1. Tracking your cash flows

What you will need to do is simply to track (and I mean by writing it down in paper or logging it digitally) your incomes and expenses into your preferred categories. The key is to do it for a week, then aim to do it for a month, a quarter and ultimately make it a habit to log them consistently.

Of the 3 steps, this is crucial and I assure you that if you are able to nail this, you are more than halfway through to a successful budgeting exercise. This is also where most people fall off as it is tedious. I will convince you of its importance and share ways that helped me make it efficient.

Tracking establishes a baseline for financial independence

Once you have maintained a record of your daily expenses, you have now established a baseline of how much you need to stop working for money and achieve financial independence. Financial independence basically means that you have replaced your necessity expenses with other streams of incomes. After tracking your expenses, you will be surprised at how reachable financial independence can be.

Tracking inculcates an attitude towards minimizing spending

While I did not realize this at the beginning of the journey, I noticed changes in my thought process once I got into the habit of tracking and budgeting. As you start to associate the action of tracking to each earning and spending, you become more aware of how you are handling your incomes and expenses. Consciously, you will evaluate if each spending is necessary and this puts you into a mindset to fight your emotional urges of splurging on a want vs a need. Spending will also start to drop, as it becomes more conscious and practical.

Tracking prepares you for managing your budget

As you start to associate the action of tracking to each earning and spending, you become more aware of how you are handling your incomes and expenses. Consciously, you will also manage your cash flows better. In other words, you are already conditioning your mind towards managing and sticking to budget by just simply tracking your cash flows.

If you are not convinced as to why you need to start tracking your cash flows now, read the above sections again!

advice text on a lilac background

To make it efficient and effortless, this might be a no-brainer, but we will make use of technology. This was the simplest method that I got me into the habit of tracking: I track my cash flows using an app. I carry my phone everywhere I go and logging the entries in a phone takes at most 3 seconds. There are tons of free apps but I started and stuck with this ancient iOS app – Monny.

Screenshot from Monny website

You are free to choose any newer expense manager app but they basically do the same thing – tracks entries, categorizes your cash flows, present them into a nice looking chart. Some tips I will say:

  • Make sure that you are happy with the steps to log 1 simple entry in app. If it is tedious to you, ditch it and find another app
  • Make sure it is visually appealing to you. While I personally do not care about visuals, I know of folks who got into the habit as the app was visually nice. Idea is to motivate yourself as much as possible to start tracking!
  • The free version of the app allows you to add categories and do charts. Most apps will have pre-defined categories to group your entries but there will be instances where you might not find a relevant one. You will need to be able to create your own category and create charts without having to pay for premium fees

As you get started with tracking, share your success weekly in the Facebook Group! I will also do so 🙂

2. Creating a budget

Here comes the fun part! Once you have at least a week of cash flows tracked, you can now make use of the pretty charts in the app (or make 1 if you are writing them on paper) to understand your earning and spending patterns. Focus on expenses as you have better control to manage it.

You will realize why I said you need to be able to create charts on the app without premium fees – pardon the graphics but it works as what it needs to be.

Few things that you will need to do to create a budget:

Compile and tabulate all your expenses in 3 broad categories

Here is where we use the 50-30-20 rule. Categorize each spending into needs, wants and savings + debt payments. Compare the percentages to the 50-30-20 rule below and see where you are standing.

  • 50% of your income for needs (housing, utilities, groceries)
  • 30% for wants (entertainment, dining out, hobbies)
  • 20% for savings and debt payments

This is just a guideline and feel free to enforce stricter proportions to accelerate your progress to financial independence (i.e. 30% for savings, 20% for wants, etc). Personally, while I think this rule is easy to understand and use, it imposes a proportion instead of optimizing to find the best breakdown that you can do. I find 40-15-45 to be my optimal.

I will elaborate below on finding your optimal proportion.

Identify unnecessary spending and cut down

Needless to say, this is the primary reason why we are doing budgeting – to find and eliminate unnecessary spending. Save more than you spend and you will retire earlier than you think.

This exercise will be at your own judgment and I trust that you know what is necessary vs unnecessary spending. This is a time to take stock and be responsible of your actions. One thought that motivated me to cut as much as possible – if I can reduce my spending to a comfortable and low amount, I can achieve financial independence with less effort and time. That said, it is a balance between making it sustainable where you can still spend and enjoy vs keeping expenses minimal.

I will share my tips to make this as painless and sustainable as possible:

  • Subject yourself to austerity for a week – no expenses should fall into the “wants” category and you should default into “needs” expenses. If you want a Starbucks, get a free coffee from your pantry. Start the week and see how far you can go.
  • You will succumb to some temptations. Record these down and the reason why you caved. Re-evaluate at the end of the day and decide if you want to cave to temptations the next day. If you have caved for 3 days on the same expense in a week, put that as a “want” expenses.
  • At the end of the week, re-tabulate your expenses proportions and reflect. Repeat the exercise until you have not broken the rule and are comfortable with the proportions.
  • You can reduce your spending, increase savings and optimize depending on your preference. The finalized proportion will be your budget plan.

With the above, you now have created and optimized your own budget.

This is more powerful than you think.

It is not imaginary where you speculate what you think you can do (as what all guides suggest) but this has been tested and proven by you on a weekly basis. This is the game-changer and what makes this guide special.

“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”

Joe Biden

3. Execute consistently

This last step seems trivial but is difficult to maintain. The final tip of this guide and for this step, remember the goal that you are doing this for – be it for a travel trip or financial freedom – making and sticking to a budget helps to accomplish that goal.

It has been a long read! Bookmark this guide if you need to come back to it again to remind yourself.

Post your weekly tracking success and discuss the above in our Facebook Group/Page. Write in to us if you have any questions or feedback.
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