Budgeting 101: Take Control of Your Finances
Are you tired of living paycheck to paycheck with little to no savings? Do you dream of having peace of mind and taking control of your finances? Creating a budget is a simple yet effective way to achieve your financial goals.
What is a Budget?
A budget is a detailed plan for your income and spending. It’s a useful tool for managing your money, and it can be customized to fit your personal habits and lifestyle. A basic budget typically has categories for income, essential spending, recreational spending, and savings.
Benefits of Budgeting
Creating a budget can help you:
- Repay debt
- Deal with financial emergencies
- Curb bad monetary habits
- Reach your personal life goals
How to Create a Budget
Creating a budget can be overwhelming, especially if it’s your first time. To help, we’ve broken down the process into smaller steps:
Identify Your Financial Goals
Consider what you want to achieve, whether it’s a short-term goal like saving for a holiday or a long-term goal like building an emergency savings fund. Set personalized goals that give you a reason to save and make it easier to adhere to your budget.
Calculate Your Income
Make sure to include all forms of income, not just your salary. This might be slightly harder for hourly workers, as the figure can fluctuate, but it’s essential to adjust your budget accordingly.
List Your Expenses
Be honest about what you spend; it’s always better to slightly overestimate if you’re unsure. This includes rent, groceries, and even the cup of coffee you get every morning on the way to work. Prioritize your expenses to determine what you need to focus on and figure out the unnecessary expenses to cut out.
Allocate Your Funds
Divide your income amongst your expenses, focusing on your priorities, and then divide what’s left into savings or investments. Anything is better than nothing, and it will become easier to know what you can comfortably save as you progress in your budgeting journey.
Keep an Eye on Your Spending
Review your finances at the end of the month and compare them to your budget. This will help you see where you stayed on track and what areas need adjusting next time.
Budgeting Strategies
If you need a bit more guidance, there are different strategies you can use to help you reach your goals.
50/30/20 Method
This involves spending 50% of your income on essentials, 30% on recreation, and 20% on savings. This can be a rough guide to see how much you should put into each category, but be aware that it might not work for everyone. For example, your essentials might come to more than 50% of your income. Play around with the numbers to find a split that works for you.
Cash Stuffing
Cash stuffing, or the envelope budget, has grown in popularity, mainly thanks to TikTok. This method can be done physically or virtually, and the basic premise involves envelopes or pockets labeled with different spending categories, like rent, beauty, or savings. You allocate your budgeted money into these pockets each month, and once the money is spent, you cannot spend more. Doing this physically with cash can help you visualize your money and get a better picture of just how much you’re spending.
Budgeting made easy
Using budgeting tools or apps is another effective way to help. Budgeting spreadsheets are available online, both free and paid for; you simply enter your income and expenses, and the sheet will work out the rest for you. Budgeting apps can also be useful with the option of automation, where money is taken weekly or monthly from your account, depending on what you can afford to save.
By following these simple steps and strategies, you’ll be well on your way to taking control of your finances and achieving your financial goals. Remember, budgets are fluid and will change depending on your situation for that month; this is not a disadvantage, and adapting when you need to will help you stick to your goals.
Make budgeting easy with apps
