Drawing up a personal budget is one of the best ways to take charge of your finances. However, getting started on a budget list can be overwhelming, and you may find yourself at a loss on where to start, or end up procrastinating and shelving your budget list plans. In extreme cases, you might find yourselves eating cai png or instant noodles every day before payday to survive. To prevent this from happening, here is why you should start drawing up a budget list to self-guard yourself against financial defeat:
Managing money can be tricky. However, with some determination and a dose of discipline, you can make your money work for you. All you have to do is to create a personal budget that is manageable and attainable.
A personal budget:
Makes You More Aware
Budgeting helps you take a good look at your income sources, expenditures, debts and bills. With everything recorded down, you will know exactly how much money is coming in, and from where. You will also be aware of how much is being saved, how much you are spending, and what you are spending on.
Gives You Control Over Your Money
A personal budget will help you to be more intentional about how you spend, invest and save your money. Following a budget ensures that you do not lack funds for anything as you will have had a plan on how your money will be used.
Will Keep You Focused On Your Financial Goals
A budget will help you achieve your financial goals by ensuring that you avoid spending money on unnecessary items or services. It helps in controlling destructive impulse and ensures that you will limit your spending to save for the things that you really need.
Creating a personal budget can seem like a daunting task when you are just getting started. The following tips ought to help make the process seamless and less confusing:
Track Your Income
How much money are you making? Take some time to track your source(s) income: your salary and any other extra cash coming in aside from what you earn from your day job. It is important to only consider income avenues if they are bringing in a steady flow of cash. Do not consider income such as gifts or windfalls that are a one-off occurrence.
Keep Track Of Your Expenses
This is one of the most important steps in creating your budget. You should keep track of your spendings. This includes your recurring monthly bills, such as rent, utility bills and cell phone bills. It should also include your daily expenses such as newspaper purchases, food, groceries and personal items.
Keeping track of your expenses will help you see how much money you need to allocate to each category of expenses. You may want to consider using your bank or credit card statements for this. You can also retain all your receipts and go through them at the end of the month to assess your spending habits.
Set Financial Goals
Before you decide how much money to allocate for different items, you will need to decide what your financial goals are. You should therefore set short-term and long-term financial goals.
Short-term goal are goals that should not take more than a year to reach. These may include saving to buy a new fridge, or paying off your credit card debt.
Long-term goals are those that will take much longer to reach. These may include saving for retirement, saving to buy a house, or saving for your child’s education.
It is important to note that financial goals are not cast in stone. However, by setting goals, you will have identified your priorities. This will help you allocate your money better.
Come Up With A Plan
Now that you know how much you are making, what you are spending on and what you are saving for, you can then better gauge how much you need every month. Using the information you have gathered, it is time to draw up a budget based on your past spending habits.
You will need to come up with categories and allocate money for each category such as savings, groceries, utility bills, rent or mortgage and personal items.
That being said, it is important to note that your plans often change along with your circumstances in life.
Live Within Your Means
Having made financial goals, you may have to reassess your lifestyle choices in order to accomplish them. This may mean reducing your spending on items that are not necessary: separating between needs and wants.
Go through your expenses. What areas can you cut back on in order to save money? Can you afford to resist the temptation of buying that new bag? Can you afford to change your mobile phone less frequently?
Review And Adjust Your Budget
Your circumstances and needs can change at any time. It is therefore important to regularly review your budget and make changes when the need arises.
Have you recently had a promotion? You may need to adjust your budget to factor in the increased income. Has your child started school? You may need to cater for new expenses such as added enrichment fees and their daily allowance. Have you reached a financial goal? You will then need to adjust your budget to cater for new financial goals.
One of the most frequently used pieces of advice for financial success is to live within your means. How can you decide what living within your means is to you?
It can be hard determining how to allocate your money even after tracking your income and expenses. An easy way to do this and ensure that you are living within your means is by applying the 50/20/30 rule. This rule will help you create a budget that is suitable for your income, and ensure that you can meet your financial goals.
The 50/20/30 rule focuses on financial goals. It is easy to use, and you won’t have to break down your budget into different categories. You simply need to allocate your money into three main categories:
These are expenses such as housing, utilities, transportation and groceries. This category includes the things that are fundamental to your life. You should allocate 50 percent of your income to these expenses.
This category includes your financial goals e.g. debt repayment, contributions to retirement and savings. You should allocate 20 percent of your income to this category. As this category will help you reach your financial goals, it makes sense to make these contributions before you use money for any other expenses.
This category includes expenses that are voluntary, personal or for entertainment. These include hobbies, entertainment, gym fees, bars, restaurants, personal care, pets and other such expenses. You should allocate 30 percent of your budget to these items.
Having this category ensures that you never feel guilty about spending money on items that you love or enjoy. You can buy that expensive handbag as long as you are ready to forgo other items in this category.
With a personal budget at hand, you are now ready to take charge of your finances and can bid goodbye to the cai png or instant noodle life before your pay cheque arrives!
Receive multiple offers in 15 mins. FREE quotes. Apply for a personal loan with Money Kinetics here to enjoy the best interest rates in the market.