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Finance

Workflow:

  1. Identify essential expenses
  2. Minimize essential expenses

Budget Categories

  1. Living Essentials
  2. Project Essentials

Personal Budgeting Methods

Personal budgeting is ultimately about answering the question: What do I want money to do for me? Money is just an instrument for us to accomplish what we want. There are four rules to follow:

  1. Give each dollar a purpose
  2. Embrace your true expense (break infrequent expense into months)
  3. Roll with punches (adapt when reality changes)
  4. Age your money (30~60 days before spending)

Caveat: only budget on the money that you already have!

A budget serves as a plan for our life and a decision makeing system for money. A good one should let us clearly see how our spending affects the rest of our life. The key to success is letting the priority drives our deisions and make sure no important things left beind.

Budgeting Vs. Forecasting

Budgeting is a real-life plan while forcasting is a series of guesses. The key difference is that budgeting only works on the money that you already have. You should never do the bedgeting based on future money. Therefore, we should have two separate workflows, one for budgeting and one for forecasting.

Identify non-negotiable expenses (obligations)

Obligations are non-negotiable expenses that maintains your life quality:

  1. House Rent
  2. Food
  3. Insurance
  4. Utility: Networking, Electricity

Identify priorities

  1. Physical health
  2. Good sleep quality

Transaction labeling policy

Necessity

  • Fixed: pay next time without hesitation
  • Adjustable: maybe or maybe not
  • Unnecessay: avoid similar spend next time

Frequency The goal of having a frequency is for amortizing big expenses. An expense is set to be yearly if the next similar purchase is expected to happen within a year. Similary, a harcut is set to be quarterly since I expect to get hair cut per 3 months.

Tips

  • Do a no-spend sprint time to time to catch up with goals
  • Credit card strategy: July Paycheck, Aug Spending, Sep Statement
  • Keep a list of unexpected expenses and track it along the way