Budgeting: A Necessary Life Skill

Introduction

Budgeting is the process of planning how much money you are going to spend on what before doing so. When you don’t have enough money to balance your wants and needs, budgeting is for you. 

Is Budgeting Just for Businessmen?

Budgeting is for everybody – be it a high school student, a graduate, a teacher, an engineer or a daily wage worker and not just for business corporates. Whether you make a paycheck of $10 or $100,000, budgeting helps you differentiate your wants and needs. It helps you monitor your spending habits and analyse your financial decisions. 

Why is it Important?

Budgeting is not just about restricting your spending on non-essential items. You could use the money that you save in many other domains. For example, you can buy a house, buy a car, buy insurance, start your own business, build your retirement plan, etc. You could also pay off your debt by meeting your financial goals.  

Basics of Budgeting

The key to successful budgeting is planning, preparation and follow-up. The foremost priority is to set a goal that is realistic and achievable. For example, let’s say your monthly income is $3000. If you decide you’re going to spend less than $50 on food, you are setting unrealistic budgetary expectations for yourself. On the other hand, if you choose to spend more than $1000, you will blow your budget right out of the water. 

Other crucial factors include your commitment, patience, determination and efforts to stick to the well-thought-out plan. Drafting a budget is a cinch; however, sticking to it is a tough row to hoe. Your budget should be flexible too. Sometimes, there may arise a situation where you may have to spend more than what you had decided. In such cases, your budget should be flexible enough to accommodate the changes. 

Things to Keep in Mind While Creating a Budget

  • Have a book or spreadsheet dedicated to maintaining your records. Or make use of apps to assist you with your financial needs if you want to.
  • Keep accurate records of your income and expenses. 
  • Allocate your money to categories like expenses, savings and emergencies.
  • Prioritise savings over expenditure to grow your wealth. 
  • Always put aside a certain percentage of your earnings to savings and spend the rest. 
  • Tweak your budget every month till you get it right. 

Budgeting is about analysing where you are right now financially and where you want to be. To do that, you need to ask yourself what kind of life you want and how you plan to pay for it. 

Creating a Budget

  1. Set your goals.  Start by writing down your goals on a piece of paper or a spreadsheet. They could be for college funds, savings, retirement plan, etc. 
  2. Set realistic and achievable goals. It is not crazy to dream big. But add a time frame and some numbers to your goals. 
  3. Cut down unnecessary expenses. Take a cursory glance at your expenditure and decide which are not priority items. Some ways to save money include limiting eating out, limiting vacation spending, limiting wardrobe spending, etc. 
  4. Determine your income. You should know how much money you have every month, after paying off taxes, insurance and so on. 
  5. Calculate your balance. Fill in your monthly income, monthly expenses, and the monthly amount needed to meet your goals in a spreadsheet. If your remainder is a positive number, you are on the right track. 
  6. Revisit and revise your goals. If the balance is a negative number, you need to revisit your goals and expenses and reevaluate them. Take a closer look at your spreadsheet and decide whether you can increase your income or cut down on some more expenditures. 
  7. Examine your balance again. If it is a positive number now, voila, you have done it. If not, repeat the process until it becomes so.

Now, you have a thoroughly balanced budget. But it does not end at this. The exhausting part begins at this point: sticking to your budget. Although it may be strenuous to follow your budget initially, it becomes easier as you progress. After all, it is worth it in the end.

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