Beginning a budget can make some individuals feel overly complicated due to the following reasons: While it is possible to start a budgeting process from scratch by noting down each expenditure and income, this is not recommended for novices in budgeting. But budgeting does not have to be complicated. This means that with a few simple measures, you can get back in charge of your finances, save more, and become less stressed. Below are some simple tips that everyone who wants to start budgeting should consider following.

1. Understand Your Income

The first process of developing a budget is to determine the cash inflow, that is, the amount of money that is available for the budget. This includes your basic wages, any other form of income that you may have, and any steady additional income. Ensure that you are calculating your take-home pay, which is the amount of money that is available to you after agreeing to the taxes and other dedutions. It is important that one knows up to which dollar they are earning in order to prepare on how to spend the income and/or even save.

2. Track Your Expenses

The first step when it comes to managing your finances is to identify how you spend your hard-earned money. For any successful budget plan, it is recommended that you keep record of all your expenses for a month, right from the house rent or mortgage, to lunch, to a cup of coffee. Anything can be jotted down using a notebook, spreadsheet, or the budgeting application. It will also help you know how you have been spending your money to ensure you may think of ways to save a few bucks.

3. Categorize Your Spending

Once one has completed his/her expenditure records, categorize the expenses in essential expenses, which include shelter, bills, foods, transport, fun/leisure activities, and savings. This also enables you to appreciate how much you are spending in each area. Some of the expenses, such as rent and utility bills, are normally incurred regularly and thus are classified as fixed expenses, while on the other hand, expenses incurred, for instance, eating out, are normally irregular and thus are termed as variable expenses.

4. Set Financial Goals

You might lose sight of what you are aiming to do financially and so when you set targets, he or she gets motivated. They may be short-term, for example, you wish to save for a holiday or to payoff, a smaller bill or may be for the long-term you intend to save for a rainy day or for retirement period. It is important for your goals to clearly defined and where possible quantifiable and realistic. For instance, instead of, “I will be saving money,” try I will be saving $500 in three months”.

5. Create a Budget Plan

Knowing your income, expenses and financial plans will assist you to develop a budget plan. There is nothing as beginning with a percentage of your income if you wish to organize your financial expenditure well. A common budgeting method is the 50/30/20 rule: a good spending plan is to spend 50% on necessities such as rent or food, 30% on luxuries such as movies or eating out and 20% on savings and bills. Change these percentages as suited the circumstances prevailing in your company.

6. Cut unnecessary Expenses

In case your expense is higher than your income, what you need is to reduce your expenditure. Depending on your results from the Pareto analysis, try to identify areas where you could cut your expenses. For instance, a person can opt to cook more meals at home rather than going to restaurants, quit subscriptions that were not showing any value, or do grocery shopping in search of other promotions. It may seem like only a few cents are being taken or put somewhere but compounded over time, it is significant.

7. Build an Emergency Fund

To be precise, an emergency fund is a pile of money used for everyday and unforeseen events such as accidents, operations, and other emergencies. One should begin to save at least $100 and $300 every month so as to have at least 3-6 months of funds for living expenses. If you have a stash of cash saved aside for emergencies, then you won’t hesitate to make an unplanned purchase that could lead to you securing a loan from your local credit union or any other financial institution.

8. Revisit Budgets and Budget Processes

Although budgeting doesn’t seem like a fun activity for the majority of people, it is not a one-time thing. Evaluating budget is also done as often as possible; commonly, once a month is recommended. See if you’re adhering to your strategy and on track towards your targets of your budget plan. If not, then altering the budget is the next best thing that you can do. It is necessary to be flexible with the budget because people become differently situated during their lives: get a new job, move to another city, etc.

Conclusion

Budgeting is also one of the most useful skills that can greatly impact the amount of money you save or spend, and the achievement of all the financial goals that are set for you. This is a way of controlling how much you spend without realizing it, or when your spending seems out of control due to realizing your potential to budget and plan properly depending on your income. Just to recall, budgeting is a routine and, as such, must be regular. Keep it up and in the long run you will be glad you took your financial life and brought order to it.

ADVERTISEMENT