Before You Start Budgeting
More than 32% of people without a budget say they do not earn enough money to need a budget or that they are too poor to create a budget. This highlights one of the main obstacles many people face, which is the disbelief in the budgeting process to get started.
Before you begin budgeting, you need to determine what you want your plan to do for you. Consider these activities to help you think:
– Write down three or four things you want to achieve in the next five to ten years; these might include getting your own home, starting a family, or running your own business.
– Write down two things you want to achieve in the next year regarding your finances. Maybe you want to pay off debt, build an emergency fund, or start a new career path.
– Write down one thing you want to achieve in the next month. This could be saving a certain amount of money or not using your credit cards for at least 30 days.
Setting Up the Budget
Once you have identified your goals, you can set up the budget. To get started, gather all the necessary paperwork you may need, such as bank statements or investment account statements. You will also need to calculate your expected monthly income, as well as your regular monthly expenses, and break them down into categories. If your income exceeds your expenses, you are off to a good start.
– Be sure to identify fixed and variable expenses in your budget. Fixed expenses are those that you pay the same amount each time, such as the cable bill or water bill, while variable expenses like groceries fluctuate monthly based on your needs.
– You don’t have to keep the budget manually. Consider using budgeting software to help you track expenses. You can upload the last three months of financial transactions, and you can rely on that for budgeting. Other programs have unique features that can send you alerts when you are close to exceeding your budget.
Tracking the Budget
Once you have created your budget, you are ready for the hard part: following it. This step is where many people trying to budget fail.
– Taking your time to track your expenses, recording your transactions daily, and deducting them from the correct category in the budget can be challenging. More challenging is making sure your spending does not exceed your income. You can use computer programs or set up an old-fashioned budget with pen and paper, or rely on an envelope system to make the budget work for you.
– Set aside time to review your budget every night for the first month to help you track your categories.
Evaluating Your Budget
After one month, you will need to evaluate your budget. This is crucial to making it work.
– Ideally, you should plan to evaluate your budget monthly for at least the first six months. This will help you learn to identify the weaknesses in your budget. After that, you can make adjustments in areas where you may have overestimated costs.
– Avoid making drastic cuts in the first month, but in each month after that, try to reduce spending to save more. After two months of starting, you may be able to cut spending more than you originally estimated and increase the amount you set towards your goals.
– Keep in mind that it’s acceptable if you realize you need to increase spending in one category; just make sure to deduct that amount from another category to maintain balance in your budget.
Defining
Goals for Your Budget
After achieving your original goals, you may want to set new ones. By continuing to set goals in the future, you will keep developing your financial habits in the right direction, as well as manage expenses that you need to cut. You can also reward yourself when you achieve new spending limits. For example, you might celebrate with a nice meal if you meet the budget goals you set for your groceries each month.
Reducing Spending
Throughout the year, you should evaluate areas where you can cut spending. It may be easy to assume that your bills are fixed and that you can’t do anything to lower them. However, if you shop around every year or two, you may find deals on expenses such as internet, car insurance, or gym fees. You may find that you’re saving a lot of money with just a few hours of research. And during that process, assess whether you need the level of services you are receiving, and downgrade if you can do so comfortably.
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Source: https://www.thebalancemoney.com/how-to-budget-successfully-2385709
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