Money management has been the worst nightmare for most people, either an individual or a business owner. There is a good portion of people that are completely clueless about how to manage their finances. The good news is that you can do it by simply creating a solid budget plan and sticking to it. What to know how to do that? Here are essential budgeting tips to guide you through the journey.
Ask Yourself Why You Need to Budget
Have you been spending money and seeing nothing in return? Do you have any savings that can help you in times of emergency? Are you moving to a new chapter in life and need to put your finances together for that? These are some of the things that push people to start seeing the need to budget for their funds.
You need to recognize your motivation for creating a budget. Having a goal in mind and knowing that you’re saving money towards realizing that dream will push you to do it. This can get easier if you choose to do the budgeting with a partner.
Understand Your Income Versus Expenses
For you to budget well for your money, you need to understand your income versus your expenses. So, you don’t like math? Sorry because you’re going to have to do some calculations here. You need to know how much money you make every month and how much change you’re going to have with after your expenses.
There is a good number of people who spend much more than they make without even realizing it. It’s possible you fall under this category. How do you know this? Easy! Take a pen and paper and write down your expenses up to the last cent then subtract them from your monthly income. If you end up with a negative, then you’re spending more than you earn.
To plan your budget, you need to reduce your expenses so that you will end up with a positive number when you do the calculations next time. Look at those things that you buy when you don’t even need them. Or those things you buy in excess. Put the extra cash in your savings or use them to pay your debts.
Prioritize Expenses and Goals
Reducing your expenses is not an easy thing to do, but you can manage if you understand the difference between needs and wants. You need to focus on essential needs before moving to the less important ones. On the top of your expenses list, you should have things such as food, transportation, utility bills, housing, etc. Don’t forget to allocate a portion of your finances to paying debts and savings.
By doing this, you will understand whether you’re using your money on things that you need or not. Are they expenses that align with your values? Do you need those things that you’re budgeting for, or can you do without them? The answer to these questions will help you decide.
Slash Out Unnecessary Expenditure
This doesn’t mean that you completely forgo your luxurious lifestyle. Of course, you can still buy those things that make you happy only that you have to minimize the amount of money you spend on them. For instance, if you like taking your coffee in a luxurious coffee shop, you can decide to make your coffee at home or switch to a cheaper shop.
Are you paying for a complete package of a gym membership? How about you only go to the gym a few days a week and do the rest of your exercises at your backyard? Maybe you’re paying an extra apartment for your girlfriend. You can move in together and save on the house rent for the other house. Check those subscriptions, memberships, and all the things you can live comfortably without and slash them out.
Live Room for Emergencies
The biggest mistake you can make when budgeting for your finances is forgetting to account for emergencies. What if you suddenly need to travel or you get into an accident. The whole of your saving plan and financial budget will come crumbling down because you will have to go back to your savings to cater for the emergency.
Having some emergency funds set aside is an excellent thing to do when budgeting. Open up a separate account for these emergencies and be disciplined enough not to touch them because you don’t know when emergencies will come knocking.
Make Use of Budgeting Apps
Anything to do with finances is usually very complicated, and if you don’t have an accounting background, you might end up getting confused. You don’t have to hire someone to take care of your budgeting needs, thanks to technology.
There are plenty of free budgeting tools you can use to do all the complicated computations and budgeting work automatically. Check your Google Play store and choose a reliable app that will help you manage your money. Some apps are also made with features that can help monitor your spending habits, financial transactions, and account balances.
Revisit the Budget
You don’t just come up with a budget for your finances and leave it at that. You must understand that there are expenses that vary from month to month. Your income can also vary depending on the type of work you do. For instance, if you work on a commission basis or run your own business, you will not have complete control of the money you earn every month.
Go back to your budget every month and make necessary adjustments. If you earned a little more than you did last month, you could add that into your saving. If your income for a certain month dropped, think of cutting off on some luxury expenses for the month.
Budgeting for your finances needs a high level of discipline on your side. It’s not easy to cut off those expenses or deny yourself a life of luxury. However, with a clear goal and a good plan, nothing will be impossible for you.