How to Budget Your Money
A budget is a laid down plan on how one will spend their monthly earnings. It is important to have a budget in place, because it helps one take charge of their finances so that the money can be used properly.
The fact that you are making a budget does not mean that you spend less, but it is all about setting priorities right at the right time as you wait for the next payday.
Below are steps to guide you into proper budgeting and to manage your finances appropriately.
- Budget Creation
- When preparing a budget, you need to have a spreadsheet -Such as the use of excel or Google sheets stating all your income and expenses. This will give you an overview of what to do and when to do it during the entire year.
- Put down your net income after taxes. If you are on salary, list down the fixed monthly income. If you have a business, the salary may vary from one month to another, but you can work on the average to determine the monthly income.
If you receive your entire money without tax reduction, plan to set aside some part of the salary as tax payable to avoid penalties.
- Analyze your fixed monthly expenses in the other column– Such expenses include mortgage, rent, water, and electricity bills which recur every month. This depends on your spending to get the figures. Ensure that you put down the monetary amount of each of these expenses next to the expense in question.
- Put down your Variable expenses– These are expenses that vary from one month to another. In this case, put an estimated figure depending on the past spending. They include groceries, entertainment, gas, savings, and others. All these should have a monetary value attached to them.
- Make a comparison between your expenses and income- From the budget, you have compiled, add the total income and deduct the total expenses (fixed + variable expenses). The balance is your disposable income; watch out if you are spending more than you earn. You could be living a life that is above your means.
- When the Budget is ready, here’s what you need to do
- Pay off your expenses– To have a peaceful financial month, paying off your expenses before setting aside money for your goals is critical. Once you have paid your monthly bills, you can save.
50% of your income should be allocated to the necessities that keep you moving daily.
- Plan for your future goals with the leftover money– With the balances, you can now put up your savings strategy, pay off your huge debts and even plan for your children’s school fees.
Also, ensure that you put at least 20% of the balance into your monthly savings fund for future investments.
- Avoid overspending- You may be left with a negative balance after budgeting. This shows that you are overspending, and it’s something you should avoid. You can do this by adjusting your spending habits, such as spending less on entertainment, clothing and being realistic about expenses.
- Set your short- and long-term goals– Short-term goals are generally set to be achieved in one year or less. From your income balance, plan on what you can achieve in the next year, for instance, paying off your credit card debt or setting up a savings fund of 5% of your income balance.
On the other hand, long-term goals are those that you can plan for the next five years. An example is setting up a school fee fund for your child for the next 5 years or saving $10,000 for personal growth.
- Practice financial discipline– This can be achieved by writing down any purchase you make. At the end of the month, you will decide whether it is worth spending on a certain expense.
- Avoid going for expensive purchases– Sometimes, you may buy something because of a brand name. If you find it’s not worth it, why not buy in bulk, save on that coin, or carry lunch from home and avoid going to a hotel during lunch break?
- Good Financial Discipline is the way to Go.
This comes about by practicing good budgeting habits. If you are a heavy spender, you can change your mind and work towards good spending habits. This is how you can do it.
Doing a monthly Budget Review- Sit down every month and see what has changed, for instance, your child may be through with school, which can be a saving for the next few months. Always keep track of your spending and adjust depending on the usage.
Use a budgeting tool for ease of planning– Using spreadsheets can be a great way , but using budgeting told such as Quicken, AceMoney or BudgetPlus can make your budgeting much easier. The beauty of these tools is that you can set reminders on the website and it will prompt you to update your budget.
Pay yourself but with reservations– The fact that you go out daily to look for money is all the reason to treat yourself once in a while. Let the money work for you. Do not enslave yourself to the budget to the extent that you cannot buy that trending shoe you admire others wearing. From your budget, see what you can buy and enjoy.
Pay off your debts- If possible, try and pay off your debts at least every month. Set a period that you will have these paid so you can remain debt free and engage in other priority investments.
Save for emergencies- While setting apart some money for emergencies can ruin your budget, setting apart a small percentage will do little or no harm. You will realize how important it is when caught up in an emergency such as medical care or job loss. Planning is undoubtedly important.
While many may ask, how do I use my budget? The answer is outright easy, at the beginning of the month, plan how you will spend your money. Write down what you spend daily. At the end of the month, get an overview of how you spent during the month, and this information will aid in planning for the next month’s budget.
We hope this information has helped you and that you will come up with a budget to help meet your goals.