Budget Planning: How to Budget Money?
In today’s highly competitive and dynamic world, it has become extremely imperative to manage your money. Budgeting helps you create a plan to spend your money and this spending is called a budget. Sometimes the hardest thing about saving money is just getting started and in this article, we will talk about everything related to budgeting…
1. What is Budgeting and Why is it Important?
Budgeting is the process of creating a plan on how you will manage your money and that spending plan is called a budget. This process helps you determine in advance whether you will have enough money to do things you want to do. But budgeting and saving money don’t come just like that and require you to plan everything carefully. When you’re committed to a well-laid spending plan, you can save a good amount of money and fulfill your dreams.
Making a budget can help you spot areas where you should be spending and where you need to hold your hand back. You may have lots of reasons to consider budgeting but we’ll discuss some of the major ones…
① Figure our your goals and work accordingly: Budgeting allows you to create a spending plan so that you are always prepared for the uncertainties. A budget helps you figure out your goals, long-term and short-term, and work towards them.
② Ensure you don’t end up spending too much: Living within your means is the ultimate way to be prepared for the future. Budgeting helps ensure that you don’t spend money you don’t have as this way you may fall in trouble named debts.
③ Helps you save for your retirement: It is always good to put some money aside for your future so that you don’t have to worry about your retirement. A budget can help you put aside a portion of your earnings each month.
④ Make sure you are prepared for emergencies: Life is filled with uncertainties and you can’t tell when an emergency could arise so being prepared is the only choice. Also, emergencies may arise at the worst possible time.
⑤ Helps you put a stop on bad spending habits: Building a budget forces you to save more and hold back at your bad spending habits. Sometimes, you end up spending too much on things you don’t need and only budgeting can help with this.
2. Step-by-Step Guide to Make a Personal Budget
First thing first, create a budget that you can truly stick to as it is important for your financial future. Making and sticking to a budget may feel outdated but it is the only stupendous thing you can do for your future. Creating an emergency fund will help you during tough times while creating a budget protects you from overspending. They both make a common-sense: saving while enjoying every bit of life.
Let’s check out this step-by-step guide to make a personal budget…
Step 1: Figure out how much you spend: Before you can make a realistic personal budget, you will need to know what your current spending habits are. This includes how much you earn and how much you spend. Take out your laptop and make a notebook to enter your income and expenses. It may look like a time-consuming process but it’s not and once you will get into the routine, you will find it an extremely helpful habit.
Step 2: Identify nonessentials: Tracking your expenses will help you catch irregular or unnecessary expenditures. You will get to know where your money goes on a day-to-day basis and what are the possibilities to cut on nonessentials.
Step 3: Set Financial Goals: To save for the future and cut unnecessary expenses, you need motivation, and setting finical goals can do wonders. It could be anything like buying a property, saving for the future, paying off debt, saving for college, etc.
Step 4: Budget for savings: Once you have made your mind, it’s time to budget for savings and decide what kind of budget will work best for you. Some primary options include a zero-based budget, a 50-30-20 budget, or whatever suits you.
Step 5: Choose a tool for making a budget: Yes, there are many tools available, both offline and online, that you can use to make a budget. Though you can always use a spreadsheet or notebook on your laptop, using specialized tools helps in easy calculations.
Step 6: Avoid common budgeting mistakes: It is quite common that you may not get everything right the first time and that’s why it is important to learn from the experience of others. Do not raise your expectations too high and keep trying.
3. How to Budget Money?
Though there are many ways you can budget your money, we’ve listed some of the practical ones that you can use in your daily life. Check them out…
1) First of all, calculate your monthly income (after-tax) and expenses to understand what you earn and what you spend.
2) Choose a budgeting plan that should cover all your needs and of course some of your wants.
3) Track your progress using online budgeting and savings tools as this will help you know the results of budgeting.
4) Automate your savings so that the money you’ve decided to allocate for a specific purpose gets there.
5) Allow up to 50% of your income for needs such as groceries, basic utilities, transportation, housing, insurance, loan payments, etc.
6) If separating wants from needs is difficult during the initial period, leave 25-30% of your income for wants such as travel, dinner out gifts, etc.
7) Commit the rest 20% of your income to savings and make sure you look at the bigger financial picture and never step back from your commitment.
In nutshell, divide your income into 4 main groups: needs, wants, savings, and debt repayment and you will start saving money.
4. Create a Budget with Your Spouse
Well, marriage doesn’t have to sound like you will have to spend a fortune to fulfill your needs or wants or no savings at all. You can achieve financial success by creating a budget with your spouse and a little bit of understanding. Sharing your financial goals with your spouse is one of those less discussed issues that have to be addressed.
In this section, we will discuss a few tips on creating a budget with your spouse and enjoy every but of life. Check this out…
1) Set S.M.A.R.T goals which means short-term, medium-term, and long-term financial goals while creating a budget. SMART here stands for specific, measurable, achievable, realistic, and time-based goals.
2) Communication is the key to success and most marriages fail due to a lack of communication and understanding. So, you must share your financial goals with your spouse and welcome his or her thoughts.
3) Create a budget together to avoid conflicts about finances and you can do this by sharing everything such as your income, your expenses, your needs, your wants, and of course your unnecessary expenditures.
4) Take stock of your income after tax and add up your mandatory expenses to know how much you earn and how much you spend. This will help you and your spouse have an idea of the minimum amount you need to spend every month.
5) Calculate what you need to save to meet your financial goals and this should take into account everything you need to do and you want to do.
6) Use budgeting tools as they have features that are specifically designed to be used for budgeting by couples. Some of them are also designed for budget beginners and come with basic functionalities.
5. The Concluding Words
Still not convinced? Let’s understand simply - your savings will going to be your income in the future. The most certain way to make sure you have enough money for your future is through creating a budget. Budgeting helps you plan your money in the best possible way so that you don’t end up wondering where it went.
A budget can set you on a path where you can not only achieve your financial goals but also enjoy your life to the fullest. Best of all, it keeps you from going into debt due to your unhealthy spending habits.
In simple words, budgeting takes into account setting up a money plan, keeping track of it, and reviewing it once in a while. Reviewing your budget regularly will help you stay on track and find any loopholes.
Keep in mind that there are always a few elements that may affect your budget: your expenses may increase, you may get a raise, you may encounter an emergency, you may reach your financial goals, etc. So, be prepared.
If you will budget now, you will thank yourself later!