For the uninitiated or unfamiliar, what we commonly refer to as a budget is an estimation of revenue and expenses over a specified future period of time, and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for an individual, a group of people or household, a business, a government, or just about anything or anyone else that makes and spends money.
However, the reality check that analysing our spending and saving habits presents has a tendency to scare people away from the process. Unfortunately, in order to manage your monthly expenses, prepare for life’s unpredictable events, and be able to afford big-ticket items without going into debt, learning how to budget is a necessary evil for just about everybody – but how exactly should one get started?
Six Tips On Mastering The Art Of Budgeting
If the thought of budgeting for the first time terrifies you, the good news is that keeping track of how much you earn and spend doesn’t have to be an excruciating experience. You don’t need to be good at maths, and having a budget in place doesn’t mean you can’t buy the things you want. In simple terms, a budget is simply a way for you to see where your money goes, and gives you greater control over your finances.
Oddly enough, budget formats come in all different shapes and sizes. Like all things finance, even budgets don’t come with a “one size fits all” approach, because everyone’s relationship with money is different. However, the general rule of thumb is that there needs to be more money coming in than there is going out. If this is a system you’re trying to master, consider the following when learning how to budget.
Keep A Money Diary – The process of keeping a money diary – even if it’s for a week – is for the author to write down every single transaction that is made on a day to day basis. This process is to not only have a real life insight into the state of their finances, but to take stock of their overall relationship with money and to identify any links to spending and moods or life events.
Track Your Expenses – Are you one of those people that comes home from a Saturday night out on the town, only to find that you’ve spent $300 on dinner and drinks? Frivolous spending is public enemy number one when it comes to budgeting, so start distinguishing the difference between “need vs want” by getting a good grasp on where your money actually goes.
50/30/20 Budget – The 50/30/20 rule is an easy budgeting method that can help you to manage your money effectively, simply and sustainably. In simple terms, the idea is to divide your monthly, fortnightly or weekly after tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt.
Consider Using Apps – For young people learning how to budget for the first time, the answer lies within the palm of your hand and can be readily found in your phone. Apps like Pocketbook, Money Brilliant, Good Budget, Finspo and even your own bank’s app can be wonderful resources to embrace as a means to tackle your finances via a budget.
Get On Top Of Debts – Consolidating your debts is one of the most straightforward ways to get on top of existing loans or debts, and ultimately lowering your interest rates. While one credit card stashed for emergencies isn’t going to make or break your chances of a loan approval, a large car loan or multiple miscellaneous debts one day might.
Embrace Automation – If you have particular recurring expenses, set up a seperate account so that the bills are paid first instead of last. With technology within our reach for almost every occasion, the same logic can also be applied for when you’re ready to start saving. Set up direct debits to remove any temptation, and make it harder to make any withdrawals.
It’s important to note that learning how to budget properly is often full of trials and errors. Don’t beat yourself up if you happen to go over your budget – simply make adjustments, and take note of these types of events so that you can readjust your expectations for the next budget.
Regardless of which type of budget you opt for, the reality is that starting somewhere is better than doing nothing. Learning how to budget is one of the best weapons you can have in your financial artilerary, and will help to set you up to spend less, save more, and ultimately gain further financial freedom – and who doesn’t want that?
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