Budgeting and Saving, two words you hear from time to time right, sometimes from your parents, from your peers, and even financial consultants. Living without a well-constructed budget is equivalent to traveling across the country without a roadmap. Although it is not impossible, it can be extremely expensive and inefficient. While individuals believe that the act of budgeting is restraining, time-consuming, and flat out boring, smart spenders and wealthy people would differ.
Around 87% of the wealthy depend on foreseeing their spending patterns and budget accordingly. That is why they are rich! On the contrary, only 30% of Americans have a long-term financial plan that includes savings and investment goals. As a consequence, the rest of the population suffers under huge debts, rent payments, and daily survival.
Sure budgeting sounds like a tedious task, but when you have your accounts under control, savings to fall back on, and a plan to follow, it is all worth it. So, let’s get started on this ultimate guide to budgeting and saving. If you master this financial art then you will not be worried about your monthly paycheck flying out the window. Additionally, you will understand the value and benefits of budgeting and saving. Another enlightening factor is that you can customize it according to your needs and wants.
What is Budgeting?
So, what exactly is budgeting is the question you need to ask yourself. Let’s avoid the textbook definition and think of it as a roadmap that will path the route for your hard-earned money, each portion of your income will be assigned a certain task. It is a plan through which you can structure the amount of money you want to spend on a certain part of your expenditure.
A budget is not something you are bound by. If you do not follow the budget you have scaled out for yourself, it will not be the end of the world. However, it is a helping hand that will help you during times of crisis and provides you with a sense of security when it comes to saving.
Through budgeting and savings, you will get estimated know-how of what your income flow is as opposed to your expenditure and the amount that you can scrape away to the side for savings.
Why is it important?
Although this dreaded “B” word seems to constrain and control, there are many benefits of creating a budget, following it, and accumulating savings at the end of the day! Here is a list of the most important ones.
Know Exactly Where Your Money is Going
Say goodbye to wondering where your money went, because if you have a budget you will know exactly where your money is going. One of the greatest benefits of budgeting is that you assign jobs to your money and record them so you know when, where, and what your funds are going towards.
Many of us have probably had an experience with impulse buying which will not be happening from now on. You can control what you are spending on knowing that you are following a budget. Moreover, if you have any outstanding debts that need to be paid the budget will help you identify those and that way you know not to spend on items that you do not desperately need now. Attain more knowledge about tips and tricks to control spending.
Increases Speed to Achieve Financial Goals
Is there a vacation you have been dying to go to or a business idea that you need to generate investment for? With the help of a budget, you can chalk out the exact amounts that you need to cut down on to save up finances to achieve your goals.
Saving Money on a Budget
The main purpose of budgeting is saving! If you can exactly pinpoint unneeded expenses and cut down on them, you can swipe more money aside for savings. Considering issues nowadays such layoffs, a pile of savings to fall back on would be extremely beneficial and helpful.
Remember, in difficult times, even the smallest of savings can seem sufficient. They can hail as your savior and pull you out from the crisis.
What is The Guide to Budgeting and Saving?
The key to creating an effective budget is to create it according to your personal preferences, making it as flexible as possible, and following the following steps.
First of all, the backbone of creating the greatest financial budget is to get your tools in order. Spreadsheets on spreadsheets are what you need!
Now you could use the old school way and use paper sheets, or get a little tech-savvy and use Excel. The perk of using Excel is that you can apply financial formulas with a tap of a button and changing numbers and digits will not require rigorous mathematics equations.
Moreover, making use of professional budgeting tools can be extremely useful such as QuickBooks, You Need a Budget and Pocket Guard.
Jot Down What You Want to Achieve from Budgeting
Around 87% of the time individuals decide to make a budget to save and put money aside for something specific. This part of the process is extremely subjective and varies from person to person.
Some common examples of goals include saving for retirement, building an emergency fund, or saving for other big purchases. Knowing what you are working towards helps categorize priorities and where you should be spending as well as where you should not be throwing money.
Keep in mind that during this process it is essential to be specific and decide attainable deadlines
Estimate Your Monthly Income
During this stage, you will be adding up the entire monthly income that you receive. This figure can be an estimate, but ensure that you do not rely on figures from your gross income.
Gross income is income that is deducted before taxes and additional expenses are cut from it, hence you should be looking at your take-home pay which is the net income.
Aside from a fixed salary, if you are attaining funds from any other way such as alimony, side projects, and side investments, that are classified as variable income. In a scenario such as this one, it is advised that you decide your monthly salary, or change your income in your monthly budget accordingly.
Determine Monthly Expenses and Track Them
Grab your laptop or a pen and paper and write down every single item you are spending on monthly. This includes every single thing, rent, food, fuel, maintenance, and so much more. Once you have done that you must budget accordingly.
In terms of food, it may vary from month to month, so you have two options. Either you can track your food habits and determine a digit accordingly or set a specific estimated budget on the spot and work from there. If you would like to tighten your budget, the best option is $100-$125 per person, every month.
Once all your monthly expenses have been determined, try canceling out red areas, which are unnecessary costs. After doing so, add up all your expenses and analyze if they are less than 70% of your net income. If it is more, the best option is to cut down on costs until it reaches the provided percentage.
Allocate a Monthly Amount for Savings
Before getting into savings, the first thing you have to do is establish whether you have any outstanding debts. You’re thinking why is that important? If you try to save money while trying to pay off debts side by side, you will not get anywhere.
For this stage, you must decide how much money you would like to put aside. You could either put aside the entire amount leftover from your net income or a 20% chunk of it. There are various accounts that you can look at for your savings funds such as an emergency savings account, big goal account, investment account, or a sinking fund account.
Map Out a Calendar and Follow It
Divide your expenses during different days of the month. This way it is pre-decided where all your money is going. It helps remove pile-ups and bottlenecks during the month.
If your mortgage goes out on the 1st of each month, then schedule the rest of your spending for dates after the 10th. Moreover, you can pre-plan spending during the holiday season, events, and other celebrations
This process will take place at the end of the month and it is an ongoing process. Once you have created a fixed monthly budget for yourself, you must make it through a trial run and evaluate it at the end.
Ask yourself questions about whether the budget suits you. If it is helping you save and pay off debts, and if it makes you satisfied. If not, then you can make adjustments to the budget and go through another trial.
Remember, a budget can be flexible to your needs!
Budgeting and saving is a gift. Not only will it relieve you of financial stress, but it will also help you reflect on your spending habits.
A monthly plan is not only limited to saving, but it also helps you change habits and organize. While it may seem like you need professional financial help, just going through these steps will put your mind at ease.
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