Budgeting is an invaluable way to gain control over your money and achieve financial independence. There are various budgeting methods, but selecting one tailored to your specific needs and lifestyle is best. Start by tracking your spending for several weeks using a budgeting app, spreadsheet, online template, or pen and paper. Estimate monthly expenses and debt payments before creating your budget plan.
1. Track Your Spending
Tracking your spending provides essential data that can assist in making better financial decisions and meeting financial goals. Tracking can take many forms; from keeping a physical budget journal to using note apps on phones or opting for online services like Mint, which automatically download and organize all transactions, tracking every dollar spent is key for long-term financial health.
Step one is selecting the tracking method that feels most manageable and following through with it; step two is consistently reviewing and logging expenses to bring awareness. Over time, you’ll become adept at recognizing trends as well as areas of overspending that need corrective actions.
2. Set Goals
Financial goals help you allocate funds more strategically toward specific objectives, such as building an emergency fund, paying down debt, and saving for future expenses. Depending on your goals, 50 percent of spending should go towards needs (rent or mortgage payments, utilities bills, transportation, and groceries), 15 percent for wants (clothes, etc.), and 20 percent towards savings such as retirement accounts or paying down debt.
Use a budgeting app, spreadsheet program, or even just a notebook and pen to track every dollar spent for several weeks and discover potential ways you can save money. Experiment with different budget systems until one works best for you.
3. Prioritize Your Spending
Budgeting will provide a clear picture of where your money is going. A typical way is to allocate 50% of income to needs, 30% to wants, and 20% to savings or debt repayment.
Distinguishing between needs and wants can be the hardest part of budgeting, but it’s essential that essential spending is distinguished from “nice-to-have” items such as restorative spa visits, unlimited data plans, or dining out. Setting priorities will help keep you on track towards meeting long-term goals more easily; whether using paper, a spreadsheet, etc., or budgeting apps, you should review your budget regularly to make adjustments as needed.
4. Create a Budget
While some individuals may find the idea of creating and following a budget daunting, it can serve as a crucial tool for achieving financial stability and long-term objectives. Using either an Excel spreadsheet, money management apps like Mint, or just an old-fashioned notebook and pen, start by listing income and expenses; divide expenses by categories (needs vs. wants) for further clarity.
Make the necessary changes as your situation changes—perhaps adding an upgraded cell phone plan, a lower mortgage rate, or savings opportunities for a vacation trip can all benefit your budget.
5. Set Savings Goals
Keeping track of all your expenses, from daily purchases made on your phone through spreadsheets or apps that track spending, to recording them in an Excel sheet, is essential for budgeting.Once you’ve taken control of your expenses, it’s time to set savings goals. These can range from short-term (like taking a trip or buying clothes) to long-term goals, such as an emergency fund or down payment.
Make sure your savings goals are both achievable and time-bound to give yourself motivation to act. If your objectives are too lofty for you to manage, break them up into several smaller targets for easier tracking.
6. Review Your Budget Regularly
Too often, budgeting fails to account for savings goals. Well-designed templates make saving a top expense, helping keep long-term financial goals on track and on schedule.
To create a budget, begin by reviewing all income sources and expenses, including fixed expenses such as housing costs, car payments, and insurance premiums, as well as variable expenses like dining out or shopping. Use old bank statements to estimate bill or debt payment amounts, and track your spending with an app that connects to accounts, automatically tracking transactions for you.
7. Create a Budget Template
To find areas for savings, it is necessary to track and categorize expenses. Use any method that works best for you: spreadsheet, app, or pen and paper. Some apps even link with bank accounts, automatically categorizing spending for ease of use.
Budget templates can help you meet all your financial goals, from tracking personal or household expenses to saving up for a specific purchase. Or you could choose an app like RoundUp, which automatically rounds up debit card purchases and deposits any extra amounts into an interest-bearing savings account.
8. Automate Your Savings
Automating recurring transfers can help keep you on track, whether it be for bills, debt repayment, or savings goals. Track your spending for several weeks using an app, spreadsheet, or even pen and paper; this will give you an accurate picture of where your finances currently stand.
Reduce or eliminate one non-essential expense such as daily coffee shop visits, weekend brewery stops, and subscription services you no longer use. Set up automatic transfers from your checking to main share/savings accounts each payday to build savings.
9. Create a Spending Plan
Establishing a spending plan can be an invaluable way of tracking your finances, understanding your spending patterns, and encouraging savings. While creating one may appear like hard work, creating one will allow you to save more money and meet your goals more easily. Begin by making a list of all of your monthly income sources and expenses. Categorize them as “needs,” “wants,” and “savings/debt repayment.”
First, determine how much of your total expenses can be divided among categories. Next, decide how much savings to set aside each month to cover irregular and unexpected expenses. Finally, choose an effective budgeting tool such as a spreadsheet, app, or handwritten journal to assist in making these plans a reality.
