Beginner’s Guide to Budgeting & Why it’s Important
Money they say makes the world go round. Unfortunately, the vast majority never have enough of it with most frequently left wondering where all their pay went. The feeling of working hard and having nothing to show for it is a terrible one. And since you’re not making millions, it is important to start cultivating the habit of budgeting. Budgeting not only helps you track your spending, if mastered it might give the impression that you make more money than you actually do.
There are countless reasons for budgeting but the most common motivation is to better manage your money and avoid overspending. This naturally leads to other benefits. Proper money management means you’ll always have enough to achieve goals that are important to you. Answering the question ‘why do I want to avoid overspending?’ reveals what the purpose of budgeting is and what financial goals you’re trying to attain. Whether the aim is to pay off all debts, travel the world, start a family, or achieve total financial freedom. Budgeting will help you get there quicker.
Be honest with yourself
The first thing to do as soon as or even before you’ve decided to start budgeting is to set clear and achievable budgeting goals. Highly specified targets are easier to meet as you can track your progress at each point so make your goals as specific as possible. If, for instance, your reason for budgeting is to fund a trip to Europe, determine exactly how much you’ll need for such a trip. This is important because the point is not just to make a budget but to make one you’re actually capable of keeping to and having clear goals will not only keep you motivated but make it easier to achieve flexibility. It is unhelpful to make a budget only to discard it after a few weeks because it’s too restrictive; this might put you off the idea of budgeting altogether. Take into account your current income streams, expenses, and general spending patterns to determine what and how you can budget without sacrificing fun and freedom.
Calculate your income
The primary point of creating a budget is to make sure your income is spent towards the most important things. As such, knowing exactly how much you’re making is key to deciding what your budget will look like. If you have multiple income streams and cannot accurately determine your monthly income, base your budget on an approximation of the least you make per month. This way there’s extra money to either save or spend when you make more.
Track current spending
Before you begin budgeting, take a month to document how you spend money. This is best done by keeping a finance journal, where you can write down everything you spend daily. It could even be better to track your spending over a longer period using receipts and credit card information in order to get a clearer idea of your spending habits. Knowing what you spend on will help with creating a more realistic budget as you can better identify the areas in which spending should be reduced and what you can cut out altogether.
Prepare for holiday spending
The period leading up to holidays is when most people overspend on their budget. For this reason, it is necessary to make special preparations to avoid falling into the same trap. Those who have made budgeting a habit usually just include holidays in their budget. For beginners it is better to make separate arrangements. Make a general list of things you usually spend money on during holidays. Then reduce this list by striking out the things you consider less relevant. All through the year, try as much as possible to save any extra money you make towards a ‘holiday fund’. Especially if you have no designated budget for savings. By the end of the year you’ll have saved at least half of what you usually spend during the holidays. This will go a long way in curbing credit card debt.
As a budgeting beginner it is important to manage expectations and make allowance for falling off the budgeting wagon once in a while. Take into account all that might happen to cause you to miss whatever targets you’ve set yourself and don’t be discouraged by these unavoidable setbacks. The key to budgeting, like most other things in life, is determination and discipline. If you have these two attributes, you can become an expert budgeter within a few years.