Budgeting is the systematic process of planning how you will spend your money. By following a well-thought-out budget, you can better manage your income and expenses, save for the future, and prevent financial issues. On the contrary, lack of planning can lead to opposite results – overspending, higher risk of getting into debt, and economic problems.
Are you one of the many individuals suffering the negative consequences of not planning your finances? If so, here are practical tips on how to budget your money to help you start your journey towards financial wellness:
Define Your Goals
Before you start planning your budget, it is best to set specific goals. Define what you want to achieve from the process and when you want to get it done. For instance, instead of aiming to “save for a car,” you should specify how much you intend to save by a specific date. You can even break down your targets further into months to make the goal more attainable.
Keep in mind that goal setting is critical in any important endeavor since it impacts the intensity of your effort. If you know what you want to achieve, you are mentally conditioned to work hard for it.
Calculate Your Total Income
Budgeting is about the efficient management of your income. As such, you should know how much money comes in every month from various sources before you can plan on how to spend it. If you have irregular income, you can “assign” a monthly earning based on how much you make on the average.
Itemize Your Expenses
To plan your finances better, you should know where your income is going. Make a list of all your expenses in a month to have an overview of your spending habits. For a more accurate picture of your expenses, you can write down your daily expenditures for thirty days. Be sure to include irregular expenditures such as tuition fees, medical exams, or vacation costs.
Prioritize According to Needs and Wants
Once you have a list of all your expenditures, categorize each one according to needs and wants. Naturally, expenses for utility bills, mortgage, and similar expenses are needs.
As you examine every item on your list, ask yourself if it will help you achieve your financial goals or if it is absolutely necessary. Once you have a detailed list, arrange the items according to your priority.
Put Your Budget on Paper
Once you have the necessary information, you can start creating your budget. Allot a specific amount for each expense, starting from what is most important (need). Make sure to earmark a certain portion of your income for wants, so that you will not feel too deprived, and a specific percentage for savings or your financial goal.
Track Your Spending and Evaluate Your Progress
If you have a budget in place, start implementing it at the start of the month. Make sure you are sticking to the allocated amount for each expense by monitoring your daily spending or through various means, such as budgeting applications or the envelope system.
Evaluate your progress after a month to see if you need to make adjustments on your spending plan or if you need to be more self-disciplined. Do not be hard on yourself if you miss your target at the onset. Give yourself time to adjust and work harder the next time.
Learning how to budget your income is a crucial first step towards better financial health. Apart from coming up with a spending plan, the process itself teaches you discipline, responsibility, and accountability. Start budgeting today so that all your hard-earned income will not go to waste.