It’s easy enough to tell yourself that you need to start budgeting, but it’s something else entirely to start actually executing your budget. Most people realise that over time.
Budgeting can be tricky, particularly if you’re new to managing your expenses in such an organised way. However, the right budget can also give you the freedom you need to live your life without constantly worrying about if you can afford next month’s bills.
If you’re thinking of entering the budgeting community for the first time, then the following tips will help you to establish your plan successfully, while keeping headaches to an absolute minimum. Remember, however, it can take a while for your budget to become successful. You’ll need to be willing to stick to the strategy that you lay out for yourself for a couple of months to see if it really works.
Step 1: Start with the Right Attitude
One of the main reasons that people fail when it comes to budgeting, is that they don’t believe that planning how to use every penny they earn will help them get more control over their lives. A lot of people see budgeting as restrictive or exhausting. However, the truth is that it gives you a better insight into what you can realistically afford to do with your money.
Before you start budgeting, assess how you feel about the whole process. If you feel overwhelmed by the concept of budgeting, would it be easier to look at it from a different perspective? Sometimes calling a budget a spending plan can make a huge difference to your attitude.
Step 2: Outline your Goals
Once you know that you have the right attitude towards budgeting, you can begin to think about what you want to accomplish with your new financial strategy. On a broader level, a budget will give you more control over your finances and reduce your feelings of stress when it comes to dealing with bills. However, you can also set smaller goals for spending too.
For instance, are you hoping to save enough money over time to go on holiday with your family, or buy a new car? If so, then ask yourself how much money you’re going to need to achieve that goal, and how long it’s likely to take for you to get there. Giving yourself a clear point to work towards will help you to stay focused.
Step 3: Explore Available Strategies
Next, you’ll be ready to explore the different kinds of budgeting strategies that you might want to use to accomplish your goals. One of the most common budgeting strategies is the 50/30/20 approach. This involves spending around 50% of your income on necessary expenses, another 30% on the things you want, and 20% on your savings.
Some people prefer to switch those last two figures around depending on how quickly they want to reach their savings goals. For instance, if you’re keen to pay for a car sometime in the next year, you might put more money into your savings. Alternatively, if you want to buy the car now with a loan like those offered by MoneyWorld and pay it back over time, you might decide to take 10% out of your “wants” fund, and put it into your essential expenses, so your strategy splits your cash into 60% necessities, 20% wants, and 20% savings instead.
Step 4: Track your Spending
Once you’ve chosen how you’re going to manage your budget and you know where your money should be going each month, keep a close eye on your spending. If you have a hard time keeping receipts, trying using an app to track your costs instead or keep a close eye on your bank statements when you’re making purchases with your debit card.
At the end of the month, you should be able to look back at your spending and determine how closely you were able to stick to your budget, and where you had the biggest issues with restricting your spending. The more information you have during this evaluation stage, the better.
Step 5: Adjust When Necessary
If you haven’t quite stuck to your budget in certain areas, ask yourself why that was. Did you simply not have enough willpower last month, or where you unrealistic when you set the budget in the first place? Regularly assessing and evaluating your budget will help you to see where you need to make updates to your spending strategy.
It’s worth reviewing your budget at least once a month to begin with, and then around once every three months after you’ve fallen into a reliable routine.