Budgets are often wrongly associated with restrictions, hassle, and headaches of counting down every single penny spent. Many people often feel too impoverished by life’s financial demands to budget.
There are many excuses created to not budget, but budgets can help make the best of the finances you have on your hands. If budgeting has become more of a chore than a helpful financial planning tool, you perhaps need to tweak your budgeting style. Below are some budgeting practices that will bring more life to your budgeting process.
A budget is a detailed plan of your entire household’s income and its expenses over a given period. If you do not have a budget in place, you will still earn and spend your income, but you will never be in a position to dictate what your money should do for you.
Your money will slip through your fingers and with time you will face financial stagnation. A budget puts a stop to mindless pending because with the one you know where you have sent each and every dollar you make.
A budget is not a bunch of receipts dumped at the bottom of a drawer in your study desk. It is also not the satisfaction of bills paid on time. A budget is not planning ways to spend part of your money and neglecting the other chunk. Such budgets will never help and may be the reason you are dog tired of budgeting. Freestyling your finances through life will not bring about any progress.
A budget is a hard copy or digital copy of your spending habits, created before a month begins. A reasonable budget will account for each and every dollar that comes into your household. It endeavors to recognize each dollar that passes through your hands.
Understand the importance of budgeting
I know what you are thinking. I am busy, why should I take on one more chore when I can hardly handle what is on my hands right now? Budgeting is comparable to the effort of making meal preps on a Sunday afternoon so that you do not have to eat junk all week. There is a lot of reward to a budgeted month some of which includes;
- Peace of mind over your finances
- Control of your finances no matter their size
- The ability to hit your financial goals
- Puts the ability to repay mounting bills and debts within your reach
- If you are living paycheck to paycheck and you have a credit card debt a budget will help to point out just how much money is going to debt and enable you to create a debt snowball that will speed up the debt repayment process.
- If you have no debt but are also living paycheck to paycheck, a budget will help locate dollars you are wasting without realizing it and help you to direct that cash towards an emergency kitty or retirement nest egg.
- If you are lucky enough to have a good income, a budget will help you make the best decisions for your money, and save for that holiday you have always wanted to go to or payback your home mortgage earlier.
Best Practices to Put Budgeting Expenses on the Right Track
Have a zero-based budget
A reasonable budget takes into account all the significant payments and the smaller one as well. Your budget should encompass every single cost you incur during the month. Zero-based budgets help to report all cash spent on the most trivial of items that at most times you do not need.
It could be toys that your children break within a day or snacks that are sending all those calories down to your waistline. Mindless spending wastes a lot of cash, and if you locate it via your budget, you will have more money left over every month to put towards meeting your financial goals.
How do you make a zero-based budget?
- Make the budget before your month commences
- List all the income coming to you
- List every single expense you have
- Move your money around till your income fewer costs totals to zero. Cut on wants and increase on savings if you have to.
Get your budget ratios right
The 50-30-20 budget by U.S senator Elizabeth Warren makes it much easier to allocate money in the right proportions in your budget. The budget design proposes that 50 % of your finances should be spent on all fixed expenses. 20% or less of your total income should be spent on wants like entertainment or debt or high-interest rates loans repayments if you are in debt or you can alternatively take help to get a larger amount of loan from this website and consolidate in a single debt with easier installment options. 30% of your savings should go towards savings.
Budgeting for an irregular income
If your income is unpredictable, yet your expenses are not, you can still enjoy the benefits of budgeting. If you are a commission-based worker, freelancer or entrepreneur, here is how to have command over your unpredictable income;
- Keep good records of the amount of money you earn to help you make a budget
- Using your records determine what the lowest pay you have received over the last few months is
- Use that low figure to make your budget. Let your needs and wants get covered by this amount
- If you are able to make more during the month, add it to your budget. Give each and every dollar you earn a name and save as much as possible.
- When the income is in plenty, build your emergency fund to cushion you on months when your income is low.
Budget for the unexpected
If there is something you should expect when making a financial plan, it is the unexpected. A roof will leak during storm season, and your car will break down on your way to work. It is essential to have a budget for unexpected financial needs so that you do not spend your emergency kit on your kid’s new pair of school sports shoes. Plan for the unexpected by;
- Writing down a list of all emergency expenses that could happen
- Noting the costs of these expenses
- Setting aside an amount of money towards these expenses every month
A budget is a dynamic tool that you can use to save more than you did last month. To save more, you need to establish what your long-term goals are. When are you planning to retire? What will be your retirement needs?
Use online calculators and get a general feel of what your savings goals for the future should be. You might only have a general estimate, but it is enough to get you on your way to a better financial future. Make your future financial goals non-negotiable expenses and dynamically adjust your spending to make room for your goals. You should eventually visit your financial advisor for better planning.