For many people, impulse spending might seem easier and more fun to do rather than budgeting. Some may have even tried budgeting their money, only to not follow their budget plan in the long run, and ending up spending more than they should.
Budgeting can be overwhelming at times, even downright scary for others. However, with the right knowledge and a gentle nudge towards the right direction, you can learn how to budget your money much more effectively.
Why You Need to Budget Your Money
Just because you already have enough finances to manage your everyday expenses, it does not mean that budgeting is already unnecessary. There are many unforeseen circumstances that may require you to use your savings, and you may get in various sticky situations if you do not have enough in your pockets.
Also, when you already have a stable budget, you will be more likely to experience financial freedom. The more money you save, the more money you’d be able to spend in the long run. This means more vacations, more shopping dates, and even the increased possibility of early retirement! Who wouldn’t want that?
Useful Budgeting Tips and Tricks
Identify and calculate your monthly income
Monitor all of the streams of money you have and calculate how much you make every month. If you always receive a paycheck from a regular job, make sure that you have already deducted the taxes that come with it.
However, if you have a variable income, such as the salary you get when you’re working freelance, use the income from your lowest earning month in the past year as your reference in making your budget.
Include other streams of money if you have them, such as side hustles, child support, or pension. When you’re done, add them all up so you can be aware of how much you earn each month.
Pick a budgeting method
Budgeting is not a one size fits all technique in managing your finances, as people have different needs and different incomes. There are various methods of budgeting, and you will eventually find the one that is best for you. You can even devise your own personal method! Here are two examples:
The first method of budgeting that I will share with you is the 50-20-30 method or the Balanced Money Formula. This method means that 50% of your income must go into your needs, such as rent, food, and bills. 20% should go to your savings or should be used to pay off any debts. Lastly, the remaining 30% may go to your wants, or you may choose to save this amount as well.
The second method of budgeting is Cash-only budgeting or Envelope budgeting. Most people tend to overspend when they use credit or debit cards, so using physical cash may help reduce the risk of overspending.
Set your goals
With a worthwhile goal, you will be much more motivated to budget your money. Are you looking forward to a vacation? Want to buy a loved one a gift? Write these goals down, or type them on your phone so you’d constantly get reminded of them. This will fuel your drive to manage your expenses more responsibly.
Track your expenses
Your expenses always change every month. You have fixed expenses, those who have a fixed cost such as your rent or internet payments. However, you also have variable expenses, those who have costs that change every month, such as groceries and gasoline.
These two different types of expenses may make it harder to track each and every expense manually, so it is advisable to download an application that can help you. With an application that will do the work for you, saving money will be much easier because you don’t have to calculate it manually every time. You can even monitor your progress with an application, and it’ll not only help you save money but also time! With the rise of technology, many different apps can assist you in myriad ways.
Change your habits, if necessary
You may not realize it, but your habits might have caused you to overspend more often than not. You may have made it a habit to buy coffee from a shop every day when you can easily brew your own coffee at home. Because of this, you must monitor your spending habits, so you can always be able to follow your budget religiously.
Managing your finances can be stressful at times, but with a budgeting plan, it’ll be so much easier. Find a budgeting method that works for you, and try your best to be consistent in following it. When you budget your money effectively, you will be able to experience many perks, including early retirement! Because of these reasons, it can be concluding that budgeting is extremely necessary for every adult.