How to Budget Your MoneyApr 04, 2022
If you want to get your finances in order, learning how to budget your money is an excellent place to start. Many people struggle with money management, but it doesn't have to be that way. With a little bit of effort and some basic knowledge, you can learn how to budget your money and take control of your financial future. This blog post will discuss the basics of budgeting and provide some tips on how you can get started.
Learn to budget your monthly income
Do you feel like you often don't have enough money or are not earning enough to meet your needs and wants? Do you spend your cash willy-nilly, not caring about where your money goes? If so, you might be jeopardizing your financial future and goals. It's essential to have the financial security to be prepared to tackle life's emergencies, such as an accident, illness, or repairs. One must remember that life can change anytime, and the amount of money you earn today might be different in the future. There's no guarantee that you will always have a healthy bounty of cash all the time.
Learning how to create an effective budget for your monthly income is an effective practice to ensure you use your money well and track where it goes. In addition, the budgeting process helps set up a sound financial future for you to meet your financial goals in life, especially the long-term ones. You don't even need to be a genius in math or accounting to learn how to budget monthly. To get you started, you only need some planning ability and competence in doing basic math, such as addition and subtraction. We list the following tips to help you budget your income.
1. Know how much you earn per month
Before you start budgeting, you have first to identify how much you earn monthly. Your monthly income can be what you earn from your job plus any additional income from side hustles, such as freelancing or a business if you have one. You have to use your net income for computations when doing your monthly budget. Net income means the money you earn minus taxes and deductions for benefits.
If you are having trouble identifying how much you earn per month, try to gather any payslips or manually note how much you make the moment you receive your salary. You can also note how much gets added to your bank account or other online accounts to get an exact figure of your earnings.
2. Set goals
A good reason you want to budget your money is that you are trying to achieve a goal. It can be a short-term goal, such as trying to buy an expensive item you need or want within a few months. Your goal can also be long-term, such as saving for retirement or building up your funds to buy your own house. Goals can motivate you to be wiser with your money. Try to set realistic goals, such as one that follows the SMART mnemonic, to ensure that you can achieve them and not waste your efforts.
3. Calculate your expenses
Next comes the meat of budgeting your money: tracking your monthly expenses. First, you have to identify your spending categories to see where your money goes each month. Categories can include:
Necessities. Your daily needs constitute most of your expenses, including groceries, bills, transportation, rent, loan payments, etc. These are the things you have to ensure you always have money for; otherwise, you can't go on living. Necessities can be divided into fixed expenses and variable expenses. For example, loan payments and rents fall under fixed expenses, while some essentials, such as groceries and transportation, can change depending on your monthly needs.
Wants. You might think you have to omit this category to budget your money well, but expenses for rest, recreation, and leisure are also essential for our well-being. The goal of budgeting is not to stifle your life but to ensure you have money for everything while still saving some for future use. However, it's easy to blow your budget under this category, so your wants are usually the ones you have to adjust if you are falling short of money. Your wants can include anything, ranging from taking trips, buying gadgets, going out for a movie, dining out at restaurants, paying for subscriptions to entertainment services, etc.
Savings. This category might be nonexistent if you are not into saving money yet. However, since we are talking about budgeting, your goal is to try to allot a significant amount of your money for savings monthly. Savings are essential to take care of any future situation, especially unforeseen emergencies. Your savings also play a part in helping you fulfill any future goals you are trying to achieve.
To help track your monthly expenses, gather receipts or statements showing how much you spend for each category. This way, you will have concrete evidence of how much you spend for each type of expenditure.
4. Plan your spending
Once you have figured out your monthly salary and expenses and a goal you want to achieve, the next step is to plan how you will budget your money. Again, your primary driver for budgeting is your goals: determine which one you want to prioritize and how much is needed to meet that goal. From there, it's a matter of making adjustments to your expenditures to hit your target. For a start, dedicate a specific amount of money to ensure that necessities, wants, and savings are all met each month. It's safe to say that around half of your monthly salary will go to needs and daily living expenses. Try to set a fixed percentage for savings per month, around 10% to 20% of your monthly salary. Then, whatever amount of money is left is for your wants. Doing this method ensures your daily needs and savings are covered, and leisure expenses will only happen if there's anything left.
When planning your budget, it's handy to use a device to help you take note of your calculations. You can write them down in a notebook or planner, use a spreadsheet on a computer, or use an app to aid you in your budgeting. In addition, noting down your budget will prove as a reference if you have trouble with your expenses and need to review what goals you have set for yourself.
5. Track and adjust your budget
A monthly budget is not a fixed document that you make at the beginning of a month, and that's it. Instead, it's a flexible document that you can adjust to anytime, depending on changes in your spending habits. Even if you already set percentages on how much money goes to different expenses and are committed to meeting them, unexpected expenses can dent your budget. For example, things in your house may suddenly break down and need repairs, or accidents may happen. So when you make a budget, you have to be flexible and adjust your spending to meet your monthly target. In addition, you may have to reduce spending on some things, such as wants or even some of your needs, to meet your savings goal or other important matter. If possible, when tracking your daily spending, try to note every purchase you make and add them at the end of the day to ensure you are within your limit. Then, for every month, make it a goal to hit your financial targets more or less. If there is a significant deficit in your financial targets even after cutting back on spending money in your budget categories, you may have to find ways to earn more income.
Save money and budget your monthly expenses effectively.
If you haven't incorporated budgeting as one of your habits, you should learn to start doing it. It's not very difficult to do and can help make your future more secure financially and prevent you from living paycheck to paycheck. You might feel you are not earning enough because you don't know where your cash goes and how much you spend daily. Whatever budgeting method you choose helps you be more aware of your spending habits. Always track your progress when it comes to spending, but do not forget to spend some of your income to make yourself happy sometimes. Budgeting is not always about restricting your finances. Still, it's also about making sure every penny spent is worth it and paving the way to give you more freedom financially in the present and the future.