If you have never managed a budget before and it is time to do this, it can be an unnerving task, especially when you don’t know where to start or what to do. Worrying about it won’t help; however, putting some helpful strategies together will, and your budgeting can become an effortless part of your daily routine. This guide can help beginners develop that strategy for their budget with ease.
Figuring out your current financial situation
Having a clear and precise understanding of your current financial situation is key before you start putting pen to paper. A few tips on assessing this can help.
- Tip 1: Evaluating income versus expenses: Knowing your total monthly income from all sources plays a part here. Everything from your monthly salary to any other external sources of income, such as side hustles, should be considered. Thereafter, consider your expenses, which include everything from your monthly rent to utilities, mortgages, groceries, leisure activities, insurance, etc. This will help you gain a clear understanding of things.
- Tip 2: Evaluating fixed versus variable expenses: The second thing to do is to look into those expenses that can be adjusted and those that are fixed or necessary. These could be the fixed expenses of things like rent, insurance, and mortgage, and things that can be adjusted, like takeout, eating out, and entertainment.
Creating an accurate budget
Once you have a clear understanding of all of the above, you can start creating an accurate budget that works for you.
- Tip 3: Choosing the right method: There is more than one method to approach when creating your budget. This Forbes article explains one of them, which is the 50/30/20 rule. This involves assigning 50% of your income to provisions, 30% to wants, and 20% to savings. There is also the ‘zero-based budget’ method, or the ‘pay-yourself-first budget’. Researching to find the one that works for your lifestyle and goals, is key.
- Tip 4: Setting precise and achievable goals: Find your motivation—it could be anything like paying off your debts or saving for your dream vacation, as these things can help motivate you to set and stick to a budget.
Tracking your expenditure
Sticking to your budget also requires an important task on your part, which is to keep track of your spending consistently. This published article on the Nerdwallet website titled ‘How to Track Monthly Expenses in 6 Steps’ can help you do this. Here are a few tips on how to do this:
- Tip 5: Using available resources: There are plenty of available tools and resources to help you keep track of things, such as spreadsheets or budgeting apps. Make sure you update them regularly.
- Tip 6: Check them regularly and adjust as needed: Set a reminder to make it a point to review your expenses at the end of every month or every quarter. If you need to make any adjustments, do so to make sure things are aligned with the above goals that you have set.
Setting and keeping the right habits
Adopting the right habits can significantly help you with your budgeting needs and your financial health. Some further tips to consider:
- Tip 7: Needs over wants: Knowing the difference between your needs and your wants means spending on only necessities and putting a limit on luxuries.
- Tip 8: Finding the right opportunities: It is always a good idea to look for avenues where you can save more money and spend less. Things such as bulk buying, looking for sales and discounted goods, and using coupons or buying generic brand products over name brands when shopping.