Simple Budgeting Tips That Anyone Can Do
The makings of any financial plan have an underlying presupposition of budgeting at its foundation. We could be living from paycheck to paycheck or we can find ourselves in the top 1% income distribution.
Simple Budgeting Tips
The commonality is present and obvious, we need to know where our money is going in order to have a grasp of our finances. Budgeting is one of the most effective methods for managing the flow of our money.
Contrary to popular belief, budgeting is not solely about tightening our belt on spending. Well ok, sometimes, but what it really is about is planning and efficiently allocating our funds.
Understanding how much we have, where it goes, the security of it, and many more all key factors when it comes to finances. Budgeting has lately gotten a bad reputation and has become a word we all shy away from.
There are many reasons for it, but the main one is the fact that it demands a certain degree of delayed gratification. With all of this said, budgeting is not a straitjacket keeping us from doing what we truly want. On the contrary, it can give us greater freedom through financial stability. Let’s see how it is done.
1. Keeping it simple
Saying and declaring that we are going to budget is not going to cut it. Know why you are doing it, do not commit just because you heard it is a good thing to do. Start off with setting a precise goal. It could be personal retirement, saving for a down payment on a house, etc. Keeping things in focus will help greatly in actually seeing the plan through.
2. The how to’s
The hardest step is always the first one. Creating a budget can seem like a complicated task, but it really is not. Start with gathering al the sources of income and all the expenses in a time period like a month, for example. For starters, there are two types of expenses, fixed and variable.
Fixed expenses are the ones that stay relatively identical at different time intervals. For instance, mortgage, rent, and car payments. Variable expenses are the ones that change beyond the statistical margin of error. These are the grocery and gasoline type of expenses and they can vary from month to month.
Knowing this, we can more easily make adjustments to these expenses, which are very likely necessary. If they are greater than our income, restricting expenditure might be the only way to go. Alternatively, it may come down to optimizing our spending. The ultimate goal to strive for our income to match our expenditure.
This might seem counterintuitive. Most people might think that the more we save the better. But this is rarely the case, as it would mean that there are unused assets. This is trapped capital, not being invested or used in any meaningful way.
In the eventuality when the income is greater than our expenses, first of all, good on us! Second, we need to find meaningful ways to invest and use that surplus the best way possible.
3. Dealing with previous responsibilities.
Most of us have some sort of debt. Well, paying them off should be the number one priority when thinking about creating a budget. Start putting bigger payments towards paying off your debt, no matter what form it comes in.
Debt is something that can hinder us every step along the way, if not dealt with quickly. And for such a responsible move for us to make, like coming up with a budget, we need a solid foundation.
What better foundation there is than not constantly paying previous debts all with interest? Not much can compare to that when talking about giving us the most financial liberty down the road.
4. Team effort
If we are married or have some other form of implied cohabitational relation with another person, things can get easier for us. Talking to our spouse about money is very important, especially when wanting to come up with a budget.
A part of what means to be in a marriage is to come up with a life together. Finances are a big part of it. Money is the tool to help us organize our life together. Having a sit-down once a month to talk about our mutual budget is the most hassle-free way of doing it.
The important thing is that everyone involved is on the same page. Looking back on the small wins we have achieved together and previous budgets we can compare our results. Enjoying the fruits of our labors together is one of the things that bring us closer together.
5. Routine or not?
Expenses will vary in both nature and quantity, from one month to the other. One month we may be putting our children to school and on the other, we are doing car maintenance. Vacations, birthdays, and holidays, all usually come on different occasions.
These should all be planned for, though cannot really be considered routine expenses. Do not allow these occasions sneak up on you. And also, do not ignore them for the sake of trimming the budget, there is no need for that when planning is involved.
Accounting for these month-to-month changes is imperative for a good, flexible budget. Having some savings is always a good idea, as it will act as a financial buffer zone. We can use this buffer to account for all of these expenses, as well as unforeseen ones.
One of the final takeaways here is that budgeting is not about limiting our freedom. It is about granting us greater freedom through financial independence. Budgeting does not have to be hard or painful.
What we have covered here is to take a calm and calculated approach to it. And maybe we might think that our finances are in perfect order, which makes budgeting a tedious and unnecessary practice. Still, we would be very surprised just how much it can help us. A good budget plan is one of the foundations for a happy and prosperous life.