So many things in life become easier when we plan. Looking after your finances is key to staying in the green and, hopefully, saving money. Budgeting is simple, the real challenge is sticking to your budget! How to set up a budget is something that many people do not plan for, something we just do and I have done by accident before too.
We will provide you with info about budgeting, as well as some steps you can take to create a budget. This is a habit worth developing due to the various improvements it will influence. Budgets are key to helping you grow your credit score over time, faster credit improvements are best left to professionals like Credit Sage, or Lexington Law.
What Is The Point Of Having A Budget?
Without a plan on how to effectively budget every month, you are likely to spend more than expected, and run out of money when you still must pay for things. What if there is an emergency, or an unforeseen event leaves you with a huge bill?
If you do not earn a regular, or set salary, it can be even more difficult to manage your finances. You cannot look at your net salary as your available spending money; you need to compartmentalize your expenses!
Steps To Help You Create A Budget
- Calculate your net income: This is your total pay BEFORE deductions such as tax, retirement annuities, or health insurance. If you have several contracts, or work as a freelancer – take detailed notes of every single customer and/or employer and save them in a file, and digitally.
- Categorize: Make categories to track where you spend your income. First focus on the fixed, monthly expenses such as your mortgage, government service bills, and insurance. Then, add your variables –the expenses that differ month to month such as groceries, entertainment, and gas or transport.
- Set goals: Be realistic, and make sure you stick to these goals. Decide what you want to save each month, and what your longer-term financial goals are. Once you have done this, you can analyze each category and see where you are spending too much money.
- Cut down: Once you have identified the problem areas, find a way to cut down on your spending, and start working on saving for your future goals.
Long term goals require preparation: Set up emergency funds, pay off any debt owing, start building up a credit report by making timeous payments, and being a reliable debtor.
Where Can I Keep My Budget?
You can use a journal, a folder, or an online app to create a budget – whichever works best for you. Choose a method which allows you to add to your notes and navigate through the categories easily.
There are many techniques you can use to budget properly, and one of the most popular is the 50/30/20 rule. This rule breaks your gross income into three main categories, namely: Needs, Wants, Savings/Debt
- Needs – 50% of your income usually covers your needs. If you can spend less, that is even better. Needs include your rent, car payments, utilities, groceries, sanitary products and cleaning items, education fees, supplies for work.
- Wants – 30% of your income can be used on your wants, although it is advisable to use less than this when possible. “Wants” refers to shopping, vacations, subscriptions and the like.
- Savings or Debt – 20% of your income may go towards savings such as investment accounts, pension funds, education for your children etc. and some of it may be used to pay of debts or invest in your future by using money now including emergency funds, retirement annuities, credit card payments, and saving accounts created for the purpose of e.g., buying an apartment and paying it off over a shorter period.
Review Your Budget
Don’t forget to review your budget regularly as inflation increases, and life continues to change as every day passes. Some months you may be required to spend more on one category, and less on the others.
Budgeting is KEY. You must stick to your budget to save properly! Spend time drawing up a realistic, and detailed budget which you can use every day to record your expenses and savings. Be prepared – have savings and emergency funds available on short-notice in case you come into unforeseeable bills.
What do you think?