Dig it, a personal budget is a financial plan that YOU should make on a monthly/weekly basis to allocate future personal incomes to expenses, debt repayment and savings.
Having a good ol’ budget will help you achieve your personal financial goals. You will get out of debt and relieve yourself from the stress that comes with the payment of bills. It is a basic personal finance requirement. Drafting a successful budget isn’t rocket science, but like you I know, how stressful it can be. This blog post will show you how to budget like a pro, and still afford those little luxuries, here are some things you can do.
List Your Sources of Income
Determine the total amount you earn from your income sources. This should include salaries, wages, business revenue and interest on investments among others.
By knowing your income, you will be in the best position to do properly plan financially and allocate your money to your monthly expenditure.
Record and Track Your Expenditures
This is the key step in creating a personal budget. It’s also the most time consuming of all the steps. Or Mint, a budgeting that I swear by. You must be honest with yourself as the records will show you a clear picture of how to allocate your income.
Make an effort for a week, two weeks or even a month and write down all your expenses. Listing all your expenses will help you determine how much you spend in every category. Or just use an app like Personal Capital.
You will probably be surprised by your spending habits (overspending). However, you will find out how you can adjust your monthly expenditure. Proper management of your expenditure can have dramatic effects on your lifestyle.
Divide your expenses in order of priority
Put down your total monthly expenses and separate your needs from wants. List the expenses, starting with the most basic needs such as food, rent, to the optional ones. Mark or circle the things that you can do without.
This helps you to create a meaningful budget. If you realize that you can’t track the amount of cash you spent on certain things, you can decide to avoid spending your money in those categories.
Evaluate Your Current Expenses and Balance Your Accounts
At this stage, you are aware of your total income from step 1, and your total expenditure from step 2. Now you need to evaluate your expenses, cut costs and balance your account.
Check your monthly purchases and compare them with your income. This will help you reflect whether your monthly income allocations align with your priorities and long-term goals.
Divide your notebook into two columns for general expenses and incomes. List all your expenses and their costs in the expense column and then determine the total.
If the total cost of your expenses is higher than your income, mark or circle the wants (things you can do without) on the expense column and try to cut costs.
Set a Cash Expenditure Limit
If you want to curb your spending, especially on the non-essential purchases, set a monthly limit. Ensure that the limit is enough to sustain you for a month. Your Cash expenditure limit shouldn’t be more than 40% of your income.
Have a visual reminder of the money you have left for your monthly spending. Constantly seeing the visual reminder will help you manage your spending habits.
Set Your Financial Goals
Financial goals are a major source of motivation. You will be disciplined on your spending habits once you set your financial goals. Whether you want a luxury car, dream house, or you would like to further your studies, these goals will help you act on your monthly budget in the right way.
Settle Debts and Avoid being in Debt All the Time
Up to 20% of your income should be allocated to this category. Pay loans, reduce credit card payments and pay back anyone you owe money. Settle your debts on or before the due date.
Be smart and try to limit credit card usage as well as loans, so as to avoid the problems of being indebted in the future. If you decide to use a credit card, select only one card from a company that offers the lowest interest rates.
If you do not like the services of your financial institution, switch to another bank. You can also consult any credit counseling agencies for a piece of advice on how to get yourself out of credit.
Your financial goals and priorities can only be achieved through savings. Save at least 20% of your monthly income. You should also think about saving for investments, retirement and more.
Have a separate emergency savings account and then define or list what you perceive to be an emergency. Don’t ever withdraw your emergency savings unless your “emergency” fits your definition. If in any case you make a withdrawal, ensure that you replenish the funds.
Have Money for Your Wants and Little Luxuries
These can be referred to as lifestyle choices and includes eating out, hobbies, traveling and more. If you are currently spending over 20% of your income in this category, you should make some quick changes. It’s not as hard as many people think. Eat out less, cut the cable, etc.
Stick to Your Budget
This is the main challenge for most people. Stick to your budget at all costs. Learn to fight the credit card temptations.
Preview your budget at the end of every month and determine the amount of income you spent in comparison to what you had planned in your budget. If you realize that your expenditure was over budget, just find out the reasons why and make adjustments.
It takes time before you can get on track with your budget. Try to be consistent and you will see the payoffs. If you really want to budget like a pro, you really need to be disciplined. Do yourself and family a favor by implementing the facts that you have learned in this article.
Isn’t it great to understand where your money goes every month? Let me know down below how you budget, what tools do you use or not?