Whatever reason you’ve decided to create a budget, either as a backup plan to secure a solid financial footing when life happens, saving towards a long-term goal, or getting out of debt — it’s evident that making a personalized budget template or plan works for almost every financial situation.
So, what is budgeting? And can budgeting help me attain financial bliss? This and more are some of the questions most people just getting started on creating a budget to manage their finances have on their minds.
Keeping things simple, a budget refers to a ledger that details all your planned spending decisions. Your expected income is estimated and funds are allocated to cater for expenses like transportation, food, insurance, and housing while still leaving extra for savings and/or debt repayments.
Using a template to create a budget might help you save money for your goals and gain control over your finances. The key here is an ideal budgeting strategy that works for you.
In this article, I’ll be sharing with you six actionable ways to set up a budget that’s better suited for you and your financial needs.
1. Take Note of Your Cash Inflows
Before you start the journey to creating a budget, you ought to first of all know the amount of cash that flows in each month. Don’t forget it’s easy to assume all your earnings are available for spending, tricking you to overestimate your spending capabilities.
During the creation process of your budget worksheet, remember to always deduct your taxes, flexible spending allocations, 401(k), and social security. What you’re left with is your real income. This is what you use to when planning a budget.
If you’re a part-timer or freelancer with irregular income, calculate an estimate of the least income you generate monthly and use it as a baseline when creating a budget worksheet.
2. Review How Much You Spend
Categorizing and noting down what you spend money on can help expose bad spending habits allowing you to make necessary changes. You get to know what takes most of your money and discover potential areas you can reduce spending.
The easiest approach would be to start by highlighting all your fixed expenses including car payments, utilities, and rent. These are important and it’s unlikely you can avoid paying them.
Then, separate your variable expenses — these are not fixed and change monthly including gas, entertainment, and groceries. Here, you have the opportunity to cut down on some of the expenses.
3. Set your goals
Before you set out to utilize the collected data, first determine what makes up your long-term and short-term financial goals.
Consider goals that are set to be completed within a year as your short-term goals. Your child’s education expenses or retirement savings can count towards your long-term goals.
Note that it’s not necessary to carve your goals in stone, however, setting them as priorities from the beginning would help you fashion your goals into a perfect budget. For example, knowing there’s a credit card debt hanging around your neck would boost your commitment towards cutting down expenses. Do you know you can pay Off a credit Card with another credit card?
4. Create A Savings Plan
Make a projection of your upcoming expenses in the following month using the fixed and variable expenses you’ve complied. You can use variable expenses to gain insights into some of your past spending habits, while your fixed expenses would help you accurately predict what your budget would be like.
A great way for you to cut down effectively would be to segregate expenses into wants and need. For example, gasoline would pass as a need for someone who drives to work daily. However, a Netflix subscription would be a want. Making adjustments depends on the importance attached to the expenses.
5. Adjust Your Habits If Necessary
At this stage, you already have all the requirements to complete your budget. Since you’ve already collected data related to your income and spending pattern or habits, it’s time to start finding areas with extra funds you can divert towards savings.
The first area to consider when cutting spending is want-to-have expenses. You’ll be surprised how much you can save watching your favorite TV series at home instead of a movie night in the cinema.
After cutting down expenses at the wants section, move on to the needs department to evaluate expendable needs. While you might need internet at home, it’s not a necessity to have the fastest one available on the market.
As a last-ditch effort, you may have to make certain hard decisions letting go of some essential expenditures to ensure you’ve something left to save. This is where your level of discipline is tested. Letting go of some needs comes at a cost, so evaluate your options.
Lastly, never overlook the little stuff, small savings can rack up to an enormous amount. The long-time financial effect of a minor adjustment in your expenses would surprise you. Check out these best savings accounts and Interest rates.
6. Keep checking in
To maintain your focus on attaining financial stability through saving, ensure you review your budget regularly especially when your finances experience a change. It could be an increase in expenses or a raise from a promotion at your workplace which would require you to update your plan to accommodate the new developments.
Note: Always revisit the already-discussed and apply them when updating your budget.
There you have it! Now you know how the power of budgeting can help you improve your financial life. You can start applying the various steps mentioned in this article. While it won’t guarantee you’ll be rich or get everything you want, with time you’ll be glad you decided to start getting intentional about your money. If you enjoyed reading this article, Check out this Survey: Half of Americans Don’t have $250 to spare and why you should to save.