Budgeting is admittedly not the most interesting of topics. That is until you consider just how much influence it really has on helping us to get the lives that we really want. Budgeting in the foundation of proper financial management. If you’re currently in debt, whether just a little or an overwhelming lot, learning how to budget is your ticket out of there. Once you’re able to create and manage a budget then you’re set for life.
Creating a budget
Remember that you weren’t born with the ability to know how to budget. So, if it’s not something you’ve developed naturally then don’t beat yourself up. Although we’re expected to manage our money well as adults in fact none of us is ever taught how to – which can lead to feelings of anger, guilt, shame and regret. Before you start budgeting, set all that aside and begin from somewhere new.
Step 1: Identify all your regular income and expenses. How much do you earn and where does it go? Until you do this you won’t know how much you are spending unnecessarily like high interest credit cards, car finance, guarantor loans and other types of secured loans. Or you could be on an unnecessarily high fuel tariff or phone contract. Therefore, you need to identify where most of your income goes to before you begin to plan for the next month’s income.
Step 2: Set your budgeting goals. These must be realistic and achievable in a relatively short length of time. Perhaps you just want to start living within your means, maybe you want to clear debt – or you might be looking to start saving. Make sure you’re setting objectives that work with the resources you have. Setting unrealistic goals can land you into more trouble because you will be living beyond your means.
Step 3: Are you spending more than you make? If the answer to this question is “yes” then fixing that will be the budget goal that comes before all the rest. First of all, establish why this is happening. What is causing you to spend more than you have? You cannot correct a problem unless you have a clear understanding of the root cause. Second, look at how this could be reduced – which expenses could you cut back on to bring yourself back within the finances you have to work with.
Step 4: Factor in seasonal and ad hoc expenses. This could be an annual summer holiday, Christmas, back to school expenses or quarterly energy bills. Some of these expenses may not be recurrent but they will affect your budgeting in the long run. You need to begin saving for these expenses early enough so that you don’t land into a budgetary deficit.
Maintaining a budget
- Decide ahead of time how the next month is going to go financially. Don’t make the mistake of waiting until the cash hits your account before making decisions about what to do with it. You may do impulse buying and find yourself lacking some of the necessary commodities.
- After a couple of months reassess. In particular, look at what you’ve spent since you started budgeting and see if you can separate what you need from what you want. The “needs” category will have to stay as an expense but anything that in reality is a “want” could be cut back. Reduce some of the unnecessary expenditure and divert the funds to meaningful investments so as to improve your cash flow.
- Keep track of all your numbers. Make sure you’re regularly checking bank accounts and credit card statements, your credit score and online banking to ensure you always have perspective on how your finances are doing. You cannot talk of budgeting unless you understand the flow of your finances.
- Give yourself a few months to get it right. It’s not easy when you start budgeting for the first time. So, if you do really well for two weeks and then have a big splurge don’t worry. Start again from wherever you are – you’ll always have made at least some progress – and then get back on track as soon as you can. Do your best but give yourself sufficient time to get on track.
If you find flaws in creating and managing your budget, you can consider using budgeting software or apps to help you. If you discipline yourself, you’ll be surprised as debts get paid, savings grow and your needs are met.