Budgeting is something that many people struggle with. It’s a difficult and often tedious process, but it can be extremely important to your financial stability in the long run. A lot of people think budgeting is just for those who are struggling financially, or have trouble managing their money. That couldn’t be further from the truth!
Budgeting helps you plan ahead and make sure you’re prepared for any unexpected expenses as well as give yourself some wiggle room if you decide to splurge on something fun. Good budgeting is all about being prepared for the unexpected
In this blog post we’ll go over what basics need to know about good budgeting so that you can start planning your finances more effectively!
What is a budget and why do I need it
A budget is a plan that details everything you spend money on and the amount of money you have to spend. It helps keep track of your spending habits, and it can also help save money when done correctly. A budget is important because it allows people to live within their means while still enjoying life or meeting other goals they may have set for themselves.
Knowing how much income and expenses there are in advance and preparing accordingly will allow people to better manage their finances throughout the year.
The essentials of good budgeting
People who think they can’t afford to budget, often don’t really want to. Budgeting is not about deprivation and fear; it’s about feeling in control of your life and having the flexibility to meet your needs without sacrificing anything important. In fact, a recent study found that people with a monthly budget have higher levels of well-being than those without one.
Budgeting is also an excellent investment for the future: A recent survey showed that 84% of Americans are saving less than 10% of their income – a figure far below what most financial experts recommend (i.e. half or more, if possible, but at least 20%). This means that the vast majority of Americans are fundamentally unprepared for unexpected costs.
Good budgeting has four main pillars:
- Setting a realistic and achievable monthly goal for your expenses. The most important part of this is to remember that the budget should not be based on what you need now, but rather what you will need in six months or one year.
- Choosing an account where money can accumulate without interruption – whether it’s savings or retirement accounts. It’s important that you don’t dip into this bucket unless you absolute have to.
- Tracking expenses by creating a budget spreadsheet. You can use any spreadsheet for this, and while many opt to use a dedicated app, it isn’t necessary. The most important thing is to actually get it done, not how it looks or what features it has.
- Setting aside money for savings, retirement and emergencies. It goes without saying that the more you save, the better, but 20% is a manageable amount for most people.
Tips for good budgeting
When you set a budget, make sure to include savings! Savings are important because they allow you to prepare for the future. You can’t predict what will happen tomorrow or next week but you can plan ahead and save for emergencies, retirement, or even just something as simple as a vacation.
Here are some of the best practices on how to create your own budget plan:
Be realistic about your finances; don’t try to spend more than what is coming in each month. If it isn’t feasible then cut back on expenses that aren’t essential (examples of essentials include rent/mortgage payments and groceries). It’s not worth going into debt over frivolous things like eating out every day or buying new clothes when there are more important things to pay for
Determine what you need. You might not think about it but your needs vary from day to day and week to week, depending on the season or how much time off work you get. Start with a monthly budget that includes some cushion (i.e., an extra $200 per month) so that you’ll have the funds to cover anything that needs attention
Decide what luxuries/wants your family can afford. If there are things on this list that don’t fit into a realistic budget, then set aside money for them in advance and avoid using credit cards or taking cash advances from credit lines when possible. This will save you interest charges and fees if you need it at all (which in all honesty is doubtful).
Create an emergency fund of three to six months worth of expenses; never dip below this amount! The best way to do so is by setting up automatic payments from your bank account every month or quarter.
Be sure to always include savings in your good budgeting plan – while saving now might seem impossible, doing so will help you prepare for the future. Even if you only manage to save $10-20 each month, it’ll still be $120-240 more than $0 after a year, and it might come in handy later.
