You’ve just started budgeting. A huge round of applause for you, no kidding. This is a great step toward achieving financial independence. Besides, many people dread this process. while others consider this as a “financial limitation.”
On the contrary, budgeting gives you freedom to do anything with your money. A budget gives you a say in what every dollar will do. This is in addition to helping you achieve your financial goals, but how’s the going from when you started this new journey?
Whatever the answer, here are some surefire budgeting tips that will make budgeting smooth and eventually help you to get better results. Let’s get started, shall we?
Zero-base Your Budget Each Month
To become an excellent money manager, you have to learn how to prepare for the future. This will be your first step when creating a budget, and each month will require its own budget because each month is different.
To do this, you’ll have to create the budget at the start of each month. This will be your template for the months to come. All you need to do is adjust various items according to the new month. While at it, don’t forget to consider upcoming months where you’ll spend an awful lot of money. This includes holidays such as Christmas.
When creating your budget, it’s important that you assign every dollar to an expense. This is what is known as zero-basing. This way, you’ll own the money, instead of the other way around. Here’s how to go about it:
- List all your income sources. To get a clear picture of your spending, take a look at your bank statements.
- Create a category for all your fixed monthly expenses such as rent or mortgage, insurance, cable, etc.
- List the varying monthly expenses such as clothing, entertainment, food, transportation, utilities, etc., in another category.
- Assign every dollar to makes sure your income fits in your budget. In the event that you have some leftover after clearing all the expenses, put it in a money goal such as paying off debt.
Do It Together
This one is for married couples. Remember, finances will affect the entire family. Therefore, it’s only fair that everyone participates in budget creation. Also, it doesn’t have to be a boring exercise. You can do it on the weekend while listening to your favorite playlist and eating some snacks.
During this process, everyone should put forward their goals and dreams. This will ensure you are on the same page moving forward. If you operate a joint account, keep in mind that it’s no longer about singular references such as “mine” and “I.” It’s “our” money. This will give you both a sense of responsibility.
Track Your Expenses
Before you can go any further with the budgeting process, you must know your total expenses. You’ll do this by tracking each and every expense right from your take-out coffee to your socks. You might be thinking to yourself that these are negligible expenses. However, expenses add up.
By tracking your expenses, you’ll know exactly where every dollar is going. From there you’ll know what to cut off and where each dollar should go.
Track Your Spending Habits
A habit is a routine performed over time that eventually becomes a part of you. They may be good or bad, and when it comes to finances, they better be good. Are you the type of person who loves your drive-thru coffee every morning? An obsession with baseball caps that could be draining a lot of money from your pocket?
If this is you, consider making adjustments in your lifestyle by tracking your spending. It will be difficult to make sudden changes, but it’s time to get real and honest with yourself. Look at the bigger picture. Do you want to pay off your debt and become financially independent? These are some of the sacrifices you’ll have to make.
Create a Realistic Budget
It’s good to be optimistic, but there’s a fine line between that and realistic. This has to do with setting achievable goals right from savings to expenses. For instance, let’s say you have a savings goal of $2,000 in the next three months.
It’s a superb goal, but just how much do you have left over after settling all your expenses? If you have zero to save even after squeezing your budget, then this is an unrealistic goal. You need to solve whatever it is that is taking up that part of your income so you can have something to save.
Adjust Your Budget
A budget isn’t fixed, as many people believe it is. On the contrary, you can make as many adjustments as you need to the budget. Besides, every month is different in terms of expenses and income.
Also, you may have reached a certain financial goal, and this means you have to redirect the money that used to go toward this goal to another goal or expense. It could also be that the budget isn’t working for you for various reasons.
The point here is to be free and brave to make adjustments in your budget. Besides, it’s your money and you’re the boss. Your main goal when making these adjustments is to make sure your expenses don’t overwhelm the total income.
Create a Miscellaneous/Buffer in Your Budget
The future is unpredictable, and the best way to sail any unexpected storm is to prepare for it. That’s why you need to set up a buffer in your budget. In fact, this should a category on its own. Put away some money in this category.
That way, you’ll be able to cover any emergencies without having to take away money meant for other expenses or even borrow it. In addition, you may want to keep a close eye on the expenses falling in this category. If they’re quite frequent, it’s time to make them a permanent expense.
Save for Huge Purchases
Many people treat huge purchases as though they were emergencies. Most of the time, they are wants and not needs. For example, spending during Christmas holidays. It’s not a bad thing to buy yourself something nice during this time or even go on a vacation.
However, you don’t have to wait until D-day to start searching everywhere for cash. Instead, start saving as soon as the holiday is over. This will take the pressure off your pockets as you try to pay off outstanding debt or multiple high-interest loans.
This also goes for items as well. Save up for these purchases and buy cash, which will help you to avoid paying interest on the items.
Use a Budgeting Tool
Many people fear budgeting because of the math involved. There are just too many figures floating around, and one mistake can jeopardize your finances. However, you don’t have to shudder every time you want to create a budget.
Technology has made budgeting a simple process that will only take a fraction of your time. Several apps exist for this process, such as EveryDollar. You can choose from a variety of templates and customize it to suit your lifestyle.
What’s left is for you to enter the figures in each category and let the app do the math for you. Some of the apps even come with budgeting tips and articles to help you become a better financial manager.
Patience is Key
After creating the budget comes the hardest part: sticking to it. This where many people fail and for good reason. Budgeting involves a lot of lifestyle adjustments, some of which may be difficult to cope with.
Therefore, you need to be patient with the whole process. Nothing was built in a day and fitting into this new way of life is no different. Apart from patience, cut yourself some slack. It’s a huge step you’re taking so don’t be too hard on yourself, all right?
Budgeting is a critical tool in your financial toolkit, and you cannot afford not having one. With the budgeting tips in this post, you should have an easier time creating your monthly budget. The bottom line is to understand why budgeting is an important process. Once you do, you’ll be one step closer to achieving your financial dreams.