Budgeting is simply a financial plan that helps us achieve our financial goals. To ensure we have enough to spend on the things we need, while saving for the future. Find out how you can set up your budget and plan for your financial goals.
To most of us, just the idea of a budget can sound mundane. Spreadsheets, numbers, charts and let’s not forget the guilt…knowing you’ve overspent.
Truth is, we’re thinking about budgeting the wrong way.
Budgeting doesn’t have to be so dull. It is a useful tool that can be fun. And what’s more fun than reaching our financial goals?
Budgeting simply helps you manage your money by tracking your spending habits. It helps to paint a clear picture of how you spend your money, so that you can gain a successful financial future.
It is important to understand that you are the CEO of your bank account and you get to make the important decisions around town.
Choose a budgeting technique that works for you. If you’re new to the game, choose one that you feel comfortable with and develop your budget over time.
Have a look at some budgeting ideas to get you started.
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Create your Budget
Although budgeting for a student compared to a retiree, is very different, these 4 steps are important for any budget.
These steps build on to each other, which makes them all equally important.
1. List your goals
There are two types of financial goals that you should have. These are short-term and long-term goals.
Short-term goals focus on your money today, while long-term goals focus on future spending.
Start by listing your short-term goals. Categorise them into necessities and luxuries.
Necessities are things like rent, car finance, utilities, groceries etc. These are expenses you can’t get away from, you have to pay them.
List all your luxuries. Which includes eating out, clothing, vacations, movies, golf etc.
You don’t necessarily need this stuff, but they make life more fun. If we don’t budget for fun, we end up spending everything we have, very quickly.
Lastly, list all your long-term goals. This includes any future spending, and we can’t spend in the future, if we don’t plan. Make a list of all your savings, retirement and investment goals.
So, what about our debt? Shouldn’t we budget for that as well?
Yes, you definitely should.
Debt sits in a grey area between immediate and future financial goals. It would be beneficial for you to look at your total debt, and work backwards from there.
Figure out when you would like to pay off all your debt and work out your monthly payments from there.
Monthly installments are included in the short-term expenses. While the total debt amount is included as part of your long-term goals.
2. Income vs Expenses
After you’ve set your financial goals, you have to start planning for them. That means comparing your income to your expenses.
Start by listing your total monthly income (after tax). This includes your salary or any extra income you may earn. This might be from additional property, child support or alimony payments.
For all the freelancers out there, using a monthly average income works just as good.
Now that you have your monthly income amount, start by listing your expenses. Use your monthly bank statement for this.
To make your budget as detailed as possible, categorise your expenses.
Fixed expenses: These are expenses you can’t get away from. This includes your rent, car loans, mortgages etc.
Variable expenses: These are month to month expenses but vary in cost. These are things like petrol, groceries, utilities etc.
Nice to haves: This list makes life more fulfilling. This includes gym memberships, entertainment, eating out etc. If you can’t afford the basics, one of these need to go.
3. Balance that Budget
The point of budgeting is to help you spend less than what you have. You might get off track every occasionally, and that’s fine. Simply adjust your ‘nice to have’ list and get that spreadsheet back on track.
It takes time for a budget to fall into place. Take the first two months to adjust your budget where needed.
Once you have control over your budget, you have to commit.
A well thought out budget will bring you closer to your financial goals.
Remember, always balance what’s coming in with what’s going out. And if you can, try to have some money left over by the end of the month. You can use that money for savings or investments.
Budgeting is only the beginning
Starting your budget, if you haven’t yet, is the first step to a stronger financial position. To really stretch your money and achieve personal growth, you must maintain your budget.
Achieving your financial goals will be difficult if you keep living beyond your boundaries. This is where budgeting becomes very handy.
You will learn how to live within your means while teaching yourself self-discipline along the way.
Budgeting is a rare beast. It only has positive outcomes and grows stronger the more you feed it.
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