How to Budget your money

What is a budget?

A budget is a financial plan that consists of an itemised summary of your income and all your expenses for a certain period. You may decide to make a weekly, monthly or yearly budget. The rationale behind drawing a budget is the fact that it makes you spend less, as it rather helps you to plan, manage your money efficiently and to equally set financial goals. A budget must not necessarily have a particular format and it can be drafted anywhere, including in a notebook, a spreadsheet, and in a notepad, etc. The reason many people struggle financially is because they fail to plan their spending by drawing and following a budgeting plan. Thus, budgeting has become such an important and life-saving skill.

How to budget your money

Why is budgeting important?

The main goal for budgeting is not only to enable you have a plan, but to equally set and achieve your financial goals. The truth is that careful budgeting can result in a number of benefits.

  • First of all, budgeting helps you understand your spending habits. Once you draw a budget, you are likely to determine what you have to do, what you want to do and what you have actually done. This information will help you know exactly the things you spend your money on, and of course, you can easily make changes.
  • Budgeting also helps us save for rainy days. The truth is that life is unpredictable and sometimes, unforeseen circumstances may occur that would warrant us to spend money. For instance, you could lose your job or even fall sick for an extended period of time. However, if you were following your monthly budget, then you can easily save some money each month for those unexpected expenses.
  • Another importance of budgeting is the fact that it makes you spend only on things that are important. It is apparent that human beings are insatiable with an endless list of wants, which they can’t afford. Well, the good thing about budgeting is that it will help you prioritise those things that really matter at the expense of sheer luxury. Once you prioritise rightly, you can be sure to set your financial goals and achieve them.
  • Above all, the habit of always budgeting can enable you make smart decisions that could be rewarding in the long run. For instance, if you are used to saving every month, you can easily take advantage and purchase something valuable via auction, so you can resell in the long run and make more profits. Besides, you can also easily benefit from great deals and discounts for certain personal items that are valuable to you.

Budgeting action plan

The whole idea of making a budget and following it requires a lot of discipline. Nevertheless, it is also imperative to follow the right plan of action in a bid to draw a good budget. Of course, you also need to follow the right steps for a great budgeting action plan. The major step of a budgeting action plan is to gather all your financial information together and this can be achieved by;

  • Assembling all your monthly expenses, including your regular house bills, living costs, insurance policies, holiday expenditures, leisure costs, and even debts such as loans and credit card. Of course, you must ensure that you have an estimated figure for each of these items on hand.
  • Then proceed by calculating your monthly income. Your monthly income is simply the money you receive every month from your job and business. It also includes benefits and allowances from partners and relatives. Note that having a fluctuating income is not an excuse to not make a budgeting action plan. If your income fluctuates often, you could still make a budgeting plan of action by merely reducing certain expenses such as non-essential clothing, washing your dishes instead of using a dishwasher, as well as reducing TV, and internet costs.
  • Endeavor to include your one-off expenses in your budgeting plan. The aim of creating a budget is to plan your spending. Thus, if you are planning to make a one-off payment for items such as a house or a car at some point within the year, you must include that in your budgeting plan of action. By so doing, you would be able to save a certain amount monthly, which will enable you make your one-off payment in the future.
  • You must also set up a savings account where you would deposit your savings every month. One of the best tips on not always running back to your savings account is to set up your account with a different bank or credit union that isn’t linked to your current account. A savings account will not only save you on rainy days, but it’s also going to make it possible for you to make your one-off payments.
  • You may also decide to use cash instead of always using your card. The reason is that when you use cash instead of your card, it becomes way easier to track your account and adjust your spending habits if the need arises.
  • In addition, you must always look for other ways to save money. Some of the best tips on saving include quitting alcohol, quitting smoking, avoiding debts, creating an interest-bearing account and packing your lunch instead of buying food every day at work.
  • Above all, you must review your budget regularly, and make adjustments, depending on certain changes, including your family size, income or future plans, etc.

Free budgeting tools

There exist many free budgeting tools that can guide and help you cultivate the habit of budgeting on a monthly basis. These tools are highly recommended to people who can’t control their spending habits. Besides, if you find yourself constantly worrying about money or are unable to pay your bills, it means it’s time for you to start budgeting. That said, some of the best free budgeting tools include Budget Brain, and debt remedy tool by Money Aware. Besides, The Money Advice Service and Citizen Advice equally have great budgeting tools, which are free and equally easy to use.

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