Updated: 13 hours ago
A personal budget is crucial if you want to manage your spending and work towards reaching your financial goals.
A Personal budget is a summary that tracks your income and expenditure for a given period, usually one month, but this can change depending on when you receive your salary.
Often, when people think of “budget,” what they think of is restricted spending, however, a budget doesn’t have to be restrictive for it to be effective.
While creating a budget may not sound like an exciting activity, it is the most important part of keeping your life and home in order.
Budgets provide several benefits such as helping you plan for the future, keeping track of your spending, being aware of your savings and debts, saving for unexpected costs, and allows you to spot financial risks.
In this blog post, you get clarity on the different types of budgeting method, common challenges and learn the 7 step guide to budgeting.
Four Main Budgeting Types
1. Budgeting Apps
Technology has proven to be a great solution for managing your finance.
There are many apps on the market today that can help you see your budget in real-time and categorise your spending.
Since we spend a large portion of time in front of our phones and PC, you can track your budget all day long.
Some of these apps cost nothing to use, like Emma App for the UK or you can pay a little extra for the pro version and enjoy added benefits of exporting your data and seeing your accurate net worth.
Others not only offer free budgeting but free annual credit report as well.
2. Budgeting Spreadsheet
You can’t underestimate the power of a good spreadsheet for budgeting.
Tracking spending with spreadsheets is simple and doesn’t come with bells and whistles.
One big advantage is that spreadsheets let you have complete control over the data you track and how it is tracked.
You can also avoid giving up your financial data to an online account aggregator.
3. Budgeting Template
One of the easiest ways to start managing your money is with a budget template.
With it, you can track monthly income and expenses with pinpoint accuracy.
You can manage your money better and know where your money goes monthly with a budget template.
This template can either be printable, which you can write on with pen or electronics and are easily accessible by the click of a button.
Cash-only systems can be a great way to budget as it helps you stay on track due to the psychological impact of using cash compared to paying for something with a debit or credit card.
This way you will realize how much these things cost.
When switching to cash, you need to be certain which categories will work as cash-only.
Certain online payments like a mortgage or student loans can remain online while others like groceries, eating out, entertainment, or clothing are cash-based.
You create your own or purchase affordable and durables cash envelopes online
Common Challenges with Budgeting
Whether for personal or business reasons, budgeting is never easy. It always comes with its own challenges. One of those is the difficulty following through having made one.
It is important to stick closely to a budget throughout the year to be able to see how well your forecasting was, otherwise, it would have been a waste of time.
Another challenge with budgeting is the time it takes to put it together.
Time is money, and not a lot of us can spend a chunk of it on budgeting but you will see that when you budget, you get to devote less time on the financial front and more on other aspects of your financial goals like savings and investing.
One last one is finding the right tools as there are many software and apps that can help with budgeting but finding the right one for you can be tough.
Therefore, you may have to try a few to find what works.
Budgeting Should Not be Complicated
Okay, some of us freak out at the mention of math, and while budgeting involves some amount of math, they only need the fun and simple kinds.
It’s just a matter of taking what’s coming in and subtracting what goes out and saving, investing the rest.
Also, like automated bill payments, budgeting doesn’t have to involve counting pennies every night.
These days, budgets can be automatically done with tools and app ensuring you can earn rewards as you settle payments.
Budgeting Tips: Step by step guide to creating a budget that works!
Are you ready to start budgeting, follow these simple steps:
Step 1: Set Clear Financial Goals
Setting the right goals for your spending will help you make smarter choices. What do you want your finances to look like in one year? Decide what’s most important to you and start from there.
Step 2: Identify your Income and Expenditures
You already know your monthly earnings, but do you know where it all goes? By tracking your spending this will become clear. Spend like you already do but jot down every penny spent and you’ll be amazed at what you’ll find out.
Step 3: Differentiate Between Needs and Wants
Determine if you want or need something. If you think that you will be fine if you don’t buy that item or spending that money will not bring you closer to your financial goals, but further away, then it’s time to set clear priorities so that you can make better decisions.
Step 4: Create Your Budget
Ensure your expenditure never exceeds your income. Balance your budget to accommodate everything you need to pay for. A simple budget calculator spreadsheet can help with this.
Step 5: Execute Your Plan
Match your spending to your income. Decide early what you’ll use your money for. Allocate money to necessities like housing, food, and utilities, put some money aside for debt payments, savings and fun purchases.
This ensures you don’t go into debt because your living expenses won’t be covered by credit.
Step 6: Seasonal Expenses
Things will often come up like school expenses, new shows, or annual membership. Set some money aside for expenses so you can pay for them without getting into debt.
Step 7: Look Ahead
It takes time to get on track with a budget. Having lived all this while without a spending plan, it will take some time to adjust. So, don’t go too hard on yourself.
Let's Wrap up!
Budgeting isn’t always perfect; the key is to maintain consistency and honesty in your approach to budgeting to be able to achieve your financial goals.
Once you get the hang of it, it can be really easy. Your goal with budgeting basically is to keep your expenses, savings, and investments equal to or lower than your monthly income.
Adjust your budget monthly if you overestimated or underestimated your expenses, and switch to cash-only budget if you cannot reign in expenditure in certain categories.
So, get to budgeting and enjoy a better financial life by implementing the tips suggested.