Budgeting is probably one of the best and simplest tools you can use to organize your finances. It allows you to identify which part of your income you are allowed to spend, what you can afford to spend, what to adjust in your spending habits, and how much to set aside for your savings, emergency, and retirement funds. In short, budgeting helps you to better understand how much you have and how to allocate your hard-earned money.
A lot of people, however, hate budgeting. They thought it is extra work to calculate and keep track of their income and expenses on a regular basis. Some would start with complicated budget categories making them feel anxious and overwhelmed while others feel restricted and forced to cut down on things that they enjoy and thought they can’t live without.
These misconceptions and common excuses on budgeting are simply not true. If your goal is to build wealth and accomplish more with your money, then you have to accept that you need to learn how to budget. If you want to put a stop to the stressful cycle of living from paycheck-to-paycheck, to get out of debt, and eventually live the life you want, then you need to learn how to budget and take action now.
It is not going to be a walk in the park but these 7 helpful tips will help you create a budget and actually meet it.
- Change your mindset.
We can only be truly happy with what we do if we change our mindset. Developing the right mindset when it comes to your finances is about learning and accepting that budgeting is a necessary step to be able to manage your money so you can enjoy the things that makes you happy. This may sound cliché but in order to change your mindset about budgeting, you need to stop the negative self-talk and start telling yourself, “I have 100% control over my money” until it becomes your reality. Make it a habit to stop complaining, to disregard negative thoughts, and instead think of the many positive things that budgeting can do for you.
- Know the basics.
You need to have a clear picture of your income and expenses. List down
all your sources of income which will come from your salary, side income, tips, commissions, bonuses, vacation pay, sick pay, severance pay, alimony, child support, pension, unemployment benefits, gambling winnings, prizes, compensation from damages, gifts, insurance benefits, grants, investment, interest income, etc.
Next, list your total monthly expenses and categorize them into fixed and variable expenses. Fixed expenses are paid monthly and may to some degree vary. These are mortgage, rent, property taxes, auto loan, insurances, utility bills, gym memberships, personal loans, etc. Don’t forget your monthly subscriptions like internet, cable TV, Netflix, Spotify, Amazon Prime, and subscription boxes.
Variable expenses vary depending on your consumption. These are expenses you can control such as groceries, gas, public transportation fare, parking, air fare, clothing, day care, entertainment, sports and recreation, hobbies, salon services, baby sitter, presents, eating out, etc. Just give an estimate amount on these items.
List all of your actual spending no matter how small that may be. This will allow you to immediately make an adjustment to your budget or lifestyle.
- Compute your disposable income.
Your disposable income is the amount that is left after you have subtracted your total expenses from your total income. Now that you know how much you’re left with, you’ll be able to set aside money for your savings account. You need to also identify or categorize this item as to purpose such as retirement, a trip, or emergency fund.
Don’t worry if you’ve discovered that you’ve been living beyond your means, drowned in debt, or with zero disposable income. That is exactly the reason why you’re doing this – to be able control your finances. A budget is about planning and deciding which things you can cut back or adjust. If you’re still struggling after cutting back on expenses, you might need to find other ways to generate income.
- Take advantage of financial opportunities.
Just because you are budgeting doesn’t mean you can no longer take risks, borrow money, and start your dream business or side hustle. That’s exactly the purpose of creating a budget – to have a clear understanding of how much money you have (or don’t have) so you can start a good investment that will fit with your plan.
An instant loan allows you to finance your business or investment with the least expense coming out of your own funds. Just keep in mind to borrow only what you can repay. Make sure you have a solid financial strategy for your new business. Don’t hesitate to get professional advice if you are borrowing to finance a high-risk investment.
- Use a budgeting app to consistently track your spending.
Budget apps make budgeting easier. The best thing that these apps can offer is portability. Having a budget app on your smartphone, tablet, or laptop gives you the ability to keep track of your budget wherever you are.
Budget apps have so many useful features you can take advantage of. You can link all your bank accounts, get alerts on monthly bills and due dates, get a reminder when you are off track, and even get a report on your actual credit score.
These features make mobile budgeting apps handy but if you are still more comfortable using your notebook, envelopes, or excel spreadsheet, that’s totally fine.
- Learn from budgeting experts and apply.
Look for the best people in the field of budgeting and personal finance and follow the things that they did right. Follow their mindset and stick to it. The fun part is you can actually improve and personalize their strategies to make it just right for you. Take only what works for you and apply them.
You can find the experts in the field of budgeting and personal finance by:
- Reading their books and blogs and following them in their social media accounts.
- Watching YouTube videos. You can watch real-life content not only from experts but from real people who are starting to develop the habit of budgeting. You can see their budgeting struggles and learn how they overcome them.
- Enrolling in online courses. Some of these courses are free.
- Listen to podcasts.
- Join live events. This is an opportunity to hang out with other beginners like you and people who are already very successful.
You have to only select the best information from these resources and keep away from the rest to avoid information overload.
- Assess and adjust.
Now that you have your budget set-up, you need to review it regularly. Your income, expenses, or your circumstances might change which could mean additional allocation for other items or you might need to cut back on some.
Remember, all you have to do at this point is to stick with the habit of budgeting until it becomes second nature to you.