Budgeting is necessary for financial stability as it ensures you can make ends meet and pay tuition, rent, student loan, entertainment expenses, and credit card bills. While many people see it as tedious work and penny-pinching of figures, it’s actually the bedrock of a sound financial foundation. It assists in having a more positive financial attitude.
Unfortunately, some people do not see the essence of budgeting and see it as a straitjacket that keeps them from doing what they want, hence, limiting their freedom. Not everyone sees that it actually gives freedom— being intentional with where your money goes provides freedom.
Having a budget will give you a clear picture of where your money goes every month, allowing you to make an action plan to remove unnecessary expenses. Although budgeting seems to be a pretty easy task, it truly isn’t.
If you are keen on learning about budgeting, here are some basics to follow:
Figure out the major parts of the puzzle
In creating a budget, you should be aware of all the money that comes in and out of your pocket every now and then. You should have a breakdown of all your expenses, no matter how small they are. This step is essential because you won’t be able to create a plan if you have no idea of what you are doing with your money in the first place. You can use a pen, paper, computer, or software like spreadsheets and budgeting apps to take them down.
Once you have the figures of the amount of money that comes in and out, you can use the 50-30-20 budgeting system could help you keep track of your expenditures with just three categories: 50% of the money that comes in goes to your necessities, 30% for wants, and 20% for savings and debt repayment. The percentage mentioned in the categories can be adjusted.
Track your cash
After listing down all your monthly expenses, you need to add up all your monthly spending. Begin adding up fixed and consistent expenses, like insurance, auto payments, taxes, and mortgage. These expenses are bounded, so reducing these costs would be pretty difficult.
After listing all your fixed monthly expenses, make a list of your necessary expenses like utilities, groceries, subscriptions, and entertainment to catch a glimpse of where your other money goes. To do this, you can begin by checking out your recent bank statement. You can also sync your credit card bills to budgeting apps to keep track of your expenditures.
Consider savings as an expense too
Most people think that savings are what comes next after paying all bills, but the truth is, it should also be on the priority list of your expenses. Think of your savings as a necessity you need to pay each month, and you’ll see it considerably grow faster.
If you find saving quite challenging to do, try setting up automatic transfers from your checking account to your savings account. Begin by opening an individual retirement account and setting up automatic deposits every payday.
Create a budget around your money goals
Know your money goals and create a budget to achieve them. Whether your goal is to settle a student loan, buy a house, or save for retirement or have a luxury vacation, a budget will serve as a northern star to guide you in achieving them.
You can use flexible payment tools to be on course in your financial goals. This service will allow you to spread out the course of your purchases from stores like Walmart and Target without incurring late fees.
Through budgeting, you will be able to know your spending habits, letting you eliminate any unnecessary expenses and receive a clear view of your financial standing. The budget you will create doesn’t need to be entirely free of mistakes; it simply needs to be appropriate for you.
Be self-aware
You must have heard countless times that you need to be yourself. This advice isn’t only applicable to your spiritual journey but also to budgeting. You need to learn about yourself, the bad habits you have when it comes to spending, and think of a strategy on how you can overcome them.
For instance, you realize that you’ll get tempted to use your savings to cover unnecessary expenses in the middle of the month, reduce the temptation you’ll be facing by moving your savings into other banks other than your checking account. Place it where it will be out of your sight and beyond your reach.
Understand your strength and weaknesses when it comes to saving money. For example, you have a habit of spending mindlessly at a mall, stay away from temptation by not going to malls or places with a lot of boutiques. If you often get tempted eating out, have a stock of goods so you’ll be more likely to cook at home.
Don’t give up in the middle of your journey
Mistakes are inevitable, especially when you’re just starting, so don’t lose hope and give up in the middle of your journey when things get wrong. Instead of quitting, find out what went wrong and start over again in the following months.
Build an emergency fund
A suitable emergency fund will help you get by and meet budgeting your budgeting objective in the long run. Your emergency funds don’t necessarily need to come from your primary work salary. You can earn it by selling some of your belongings, working sidelines, and enduring extra shifts.
The least amount to save for an emergency fund is $1000. The amount reserved in this savings can be used as a cushion when unexpected events happen. Even though $1000 isn’t enough to possibly cover all full-fledged emergencies, it serves as a decent starting point.
Don’t compare your journey to others
A budget is a personalized endeavor that should be customized individually, according to how one person lives, unique interests, and single needs. Everything you do can influence your budget, from your food preference to the way you travel and the way you go to work from your house.
Establishing a budget that will be appropriate for you takes time, but once you complete it, you will have the ultimate budget plan that will be unlike any other plans you’ve seen. Always remember that everyone has different circumstances in life, and no budgets are the same.
Prepare for emergencies
As the saying goes, “You’re one illness away from depleting all of your savings.” Even when you come up with the ultimate budget plan that works for you, if an unforeseen event creeps in, your budget plan will have no other choice but to be shattered. Emergency expenses can rapidly snowball into massive debt, so you need to prepare for emergencies.
Compared to the emergency fund that is allotted for an unexpected need for the house or car repair, there should be other emergency savings that should only be used in case of a true emergency like unexpected employment or medical emergency. Having an emergency fund will reinforce your entire budget. It won’t just help you from a difficult situation but will also allow you to relieve stress.
Avoid situations that require you to spend money
After you have created a budget, what you have to do is to stick with it. You need to have strong self-restraint to avoid situations where you know you will spend money, like eating out with friends and getting manicures and pedicures. Instead, look for ways to do the cooking or nail painting by yourself. One of the best ways to stick to a budget is doing things for yourself rather than having someone do it for you.
