Budgeting is no fun. But it is a powerful tool that will let you take control over your finances. Budget is a simple written plan that allows you to make financial decisions about how to spend your money. This will make it easy for you to cover all your expenses and start building wealth. Once you have mastered budgeting, you can rest assured that every dollar you are earning is used exactly the way you want it. Having a budget will help you keep a track of your spending and ensure you stay stick to your financial plan. Often, only when you start budgeting you will actually know how much money you are spending on things that are important and that are not.
Getting Started With Your Budget
It is a straightforward process to get started with a budget. Look at the expenses of the past three months if you have not budgeted. You can also use your bank statement to break them into different categories. There are several online budgeting tools and software that can help you sort them. Also make a list of all the bills that you pay every month.
• You can start by listing your income for the month. Include everything right from the paychecks you receive, income from other sources such as investment or child support.
• List all your expenses right from the most important to least important. Making a list of your expenses will help you cut in your budget. Your priority should be to first cover your necessities followed by debt payments and savings goals.
• Once you have a list of your spending and income, compare them. Your spending should be less or equal to your monthly income.
• Keep a track of your spending and stop right after you have reached the limit in any particular category. If you fail to stick to your spending, you will also fail to abide by your budget.
• After you have followed the budget for at least one month, it will be easier for you to plan for the next month. By the end of the first month, look how you had spent and make the necessary changes in each category if you have spend more than what you planned.
Different Budget Types
There are various budgeting strategies designed to help you make budgeting easier. One strategy may work for you but might not work from everyone. So, go through the different strategies and find out the one that best works for your personal situation.
• Envelope Budget- It is a budget where you need to assign money to each category separately. Once you have received your salary, put away the money into different envelopes. Label each envelope for the category. Stop spending when you run out of money in that category. This strategy is ideal for anyone who is not good at keeping a track of their expenses.
• 50/30/20 Budget: This budget will help you to determine how much you need to spend on different category and focus on financial goals. The first 50 percent of the income you receive after tax deduction should be spent on basic needs such as housing, everyday food intake, transportation costs, and utilities. The next 30 percent should be spent on your wants such as entertainment costs, eating out, club memberships, cable television, and so on. The remaining 20 percent should go towards savings and debt repayment. Saving can also include goals such as buying a home or retirement.
• Zero Dollar Budget: Under the zero-dollar budget strategy you plan a budget in such a way so that your income minus expenses equals zero. When you start a zero based budget you start at zero and your expenses matches your income.
• Five Category Budget: Followers of the 5-Category budget needs to set up five different categories and determines the percentage that should be spend on each category. For instance, you can spend up to 35 percent of your income on housing, 15 percent on transportation, 25 percent on living expenses, 10 percent on saving and the remaining 15 percent to pay off debt.
You can also consider the various budgeting software or budgeting app that works best for you. Take the time to keep a track of your budget regularly and work on finding ways that will save you on the different budgeting categories. The more you save, the easier it will be for you to stick to your budget and achieve your financial goals.