The Art of Budgeting Have you ever felt like your money disappears in the air before the month ends? You are not alone. Millions of people around the world struggle to ensure that they have something left to save after spending their funds. However, it seems that people do not need to have an economics college degree to have a detailed plan about what to do with their money — they need a budget instead. Budgeting does not mean depriving yourself of anything. On the contrary, it means that you know where every dollar of your money goes, ensuring that each penny is useful. Budgeting is financial freedom, i.e., when your money works not against you, but when you plan how it works for you. Therefore, let’s start with the basics of budgeting, the reasons why it is important, and learn how you can paste your regular spending habits into a concise spending plan and see where you can improve. Reasons Why Budgeting is Important Flow of money occurs when no one keeps track of it. In the modern world of payment cards, quick loans, and money transfer, it is difficult to know how much you spend per month. With the help of budgeting, people can do the following:
Creating a budget may seem overwhelming if you’ve never had one or have tried to start one before and failed. Keeping it simple is the key, and it should be easy for you to follow. The following are steps to help you create a budget. * Figure out what your income is. Calculate the exact amount of money you receive in a month before creating a budget. Use the following income sources to determine your total monthly income: Your salary after taxing, Earnings from your side hustle Benefits from the government Rental income, investments or any other sources. When you know exactly how much you earn, you can determine how much to allocate in each type of expense. * Track your expenses. For one month, write down each dollar you spend. Every penny – yes, really. When most people realize how much they’re spending on small things, they’re surprised. Spending a few dollars at the coffee store, impulse buys, or subscriptions you had forgotten about. It will help to use a notebook, spreadsheet, or use budgeting apps like Mint or YNAB to record spending. Watch for the following categories: Fixed Costs: Rent/mortgage, vehicle payments, insurance, internet, and utilities. Variable costs: Groceries, dining out, transportation, entertainment. Discretionary spending: hobbies, clothes, gifts, streaming services. Savings and debt repayment: credit card loans, emergency funds, and retirement. * Set Spending Limits. Determine the budget limits for each category after calculating the monthly income and tracking expenses for your income and expenses. This prevents overspending and makes sure money is allocated to the priorities first. According to the 50/30/20 rule: 50% of expenses should be on needs such as rent, utilities, groceries, and minimum debt repayment. 30% of expenses should be wants, such as dining out, shopping, and entertainment 20% of priority payments in savings or debt repayment
Use budgeting tools. It is easier to manage a budget when you have the right tools working for you. You might want to consider the following: apps, such as Mint, YNAB, PocketGuard; spreadsheets. Create a simple excel sheet to monitor money coming in and going out; and cash envelopes. Use cash for some categories, like dining out or fun spending; once it is gone, you stop spending. 5. Automate your finances. Budgeting can be effortless if you automate: automatic bill pay for rent, utilities, and monthly subscription; automation for saving, put some percentage of your paycheck directly to savings account; debt autopay; this way, your essentials are covered before you even have a chance to overspend. Creating a budget is easy, sticking to it is a whole different story. Life often throws unexpected expenses at us, but it’s all part of the game. Here’s how to make budgeting sustainable: track and adjust. Review your budget once a month: if you consistently overshoot in some areas, adjust the limits or look for ways to cut down; cash for the discretionary, credit cards make it easy to overspend. Withdraw cash for entertainment, dining out, or shopping: once your cash is gone, you stop spending; plan for the unexpected. An emergency fund helps you from dipping into savings every time something unexpected happens. Save at least 3-6 months of expenses; ways to spend less: cook at home; cancel subscriptions you never use; buy second-hand; shop with discounts and cashback. Make it a habit. Budgeting doesn’t have to be a chore. Make it a habit, just like working out. Spend half an hour every week checking your expenses and adjusting as needed. The miracle happens when you stick to a budget:
Less stress: No more anxiety about being able to afford things. More savings: you will have money put aside for the future. Financial freedom: you are in control of your finances, not your money in control of you. Clear goals: whether it’s a home, vacation or retirement, your budget will help you work towards them. Budgeting does not mean you cannot have the things you want; it means you have a plan to help you achieve them. When you limit spending, monitor costs and adhere to a budget helps with your money, you are responsible for your future. It is essential to begin tiny. It would be best if you started by monitoring purchases for a week, but the important thing is to maintain it. Your future self will appreciate it! Are you finally ready to make your first budget to get your finances in order? Just give a try; it’s worth a fortune!