Budgeting is considered one of those basic life skills that you’re supposed to learn as a child. But honestly, it’s not necessarily the easiest thing out there. You have to keep in mind that unexpected events happen, surprise costs creep up, and then there are impulses and emotions that compel you to buy something.
So overall, it’s not exactly the easiest or straightforward. But with that said however, this is a skill everyone needs. It’s not just about understanding it, but truly implementing it into your daily life. So, whether you want to save money, handle your spending habits better, or pay off some debt, here is exactly what you need to know on how you can make it happen!
Understand Your Income and Expenses
That’s right, it’s all going to start right here, so before you can create a budget, you need to know how much money you have coming in and where it’s going.
Track Your Income
Start by listing all sources of income. This includes your salary, any freelance work, rental income, and other sources. Make sure to account for after-tax amounts to get an accurate picture of your take-home pay.
Track Your Expenses
Next, track all of your expenses for a month. This includes everything (yes, everything) from rent or mortgage payments, utilities, groceries, and transportation to coffee runs, dining out, and entertainment. So, there are different wants to go about this. You could look into using a spreadsheet, a budgeting app, or even a notebook to record your spending. But overall, you’re going to want to just categorize your expenses to see where your money is going.
Set Financial Goals
Having clear financial goals will motivate you to stick to your budget. So, you’ll need to think about what you want to achieve in the short term and the long term.
Short-Term Goals
Short-term goals are things you want to achieve within the next year. This could include saving for a vacation, building an emergency fund, or paying off a credit card (granted, this depends on how much debt you’re in).
Long-Term Goals
So, what about what you want to achieve in the long term? What would you like in the next five years? Next ten? These might include buying a home, saving for retirement, or paying for your children’s education.
Create a Budget Plan
Alright, so now you have an idea of your income and expenses, it’s now time to create budget. But where do you even begin though?
Choose a Budgeting Method
So, there are several budgeting methods that you’re going to have to keep in mind, and you can choose one of these (it helps to just focus on one) and start from there.
- 50/30/20 Rule: This is where you allocate 50% of your income to needs (such as bills), 30% to wants (such as dining out), and 20% to savings and debt repayment.
- Zero-Based Budget: Every dollar is assigned a job, so your income minus expenses equals zero.
- Envelope System: This one means you’ll actually have some physical cash on you. This system seems to be pretty popular, especially on TikTok. It’s all about allocating cash for different categories and spending only what’s in the envelope for each category. If you have physical cash on hand, you’ll be less inclined to spend it (except for needs); you’ll rather save it.
Allocate Your Income
Speaking of allocating your income, you should divide your income according to the budget method you’ve chosen. Make sure to prioritize essential expenses like housing, utilities, and groceries. Plus, you need to allocate funds for savings and debt repayment before budgeting for discretionary spending like dining out and entertainment.
Track Your Progress
Creating a budget is the first step! Yep, you read that right; it begins right there, but it’s just the tip of the iceberg. So, the key to successful budgeting would have to be tracking your progress and just making adjustments whenever it’s needed.
Review Your Budget Regularly
You’ll need to set aside time each week or month to review your budget. Actually, it’ll be in your best interest to compare your actual spending to your budgeted amounts and adjust your categories if necessary. This will help you stay on track and make informed decisions about your spending.
Use Budgeting Tools
It’s up to you if you want to do it the old-fashioned way with a spreadsheet, but it might be better to use apps like Mint, EveryDollar, or YNAB. These can sync with your bank account and credit cards to automatically track your income and expenses. This is not the only reason why it’s recommended to use an app; these will also help you out with insights and reminders—keeping you on track of your goals!
Learn to Cut Out Unnecessary Expenses
This one might be tough because your emotions will play into this, but if you want to save or even get out of debt, then you need to pay close attention to this one!
Identify Non-Essential Spending
Are you bad with impulse purchases? Do you dine out a little too much? Are you guilty of getting delivery more often than you should? What about subscriptions? Do you have subscriptions to multiple streaming platforms? Do you play subscriptions that you aren’t even using? Do you even have a gym membership you’re not using? You might be able to save a lot of money (as in changing your lifestyle) if you’re able to cut out what’s not essential.
Find Alternatives
You should be on the lookout for cheaper alternatives for your usual expenses. Why not cook out at home instead of eating out? Friends wanting to go out for a movie? Well, invite them to your place for a movie! Use public transport rather than driving. Overall, small changes can really add up to significant savings over time.
Now, Get to Saving!
While sure, these are a lot of steps, and yes, there’s a chance that some of the enjoyment of day-to-day life might be zapped away, in the end, it’s definitely worth it! Having financial solitude is significantly more worth it. Just remember, the key to successful budgeting is all about consistency.
