One of the most common rules that comes up again and again when talking about wealth management is budgeting. But what does this budgeting tips mean and why is it important?
Budgeting is the process of creating a plan for how you’ll spend your money during a specific period e.g. day, week, or month. The plan you come up with is your budget.
Because budgeting is all about developing the right spending habits and living within your means, it helps ensure that all your needs are covered. It will also help you steer clear of debt or get out of it faster if you’re currently in debt.
Ready to give budgeting a shot but unsure of where and how to start? Read on and learn some useful budgeting tips for starters!
Determine why you need a budget
Budgeting is a crucial part of smart financial management. But before starting off with the process, it’s important to first determine why you need a budget.
Is it because you want to start building your savings? Or you need to reduce spending in certain areas and allocate more funds on others? Is it because you want to break the paycheck to paycheck cycle? Or you probably want to finally get out of debt?
Identifying your motivation for creating a budget is important because it plays an important role in how you handle money. It can increase your likelihood of achieving your financial goals because it keeps you focused.
Analyze where your money is spent
Now that you clearly understand why a budget is important to you, be sure to also analyze your current spending habits. Otherwise, your budget will be nothing more than just a wish list.
Write down or track where your money is spent for a month on a notebook or a spreadsheet. What bills do you pay on a monthly basis? How much is spent on food? On utilities? How about your daily or weekly expenses? Take a deep dive into how you currently spend and monitor every expenditure. If you’ve been keeping receipts as well as credit card statements, use them, too. They can help you get into the details of your purchases.
All of this may be a tedious task but this is how you can get a clear picture of your spending.
Track your irregular expenses
When keeping track of your expenditures, don’t forget to include the irregular ones.
Irregular expenses are those that are not a part of your regular monthly spending. They may include spending on occasions such as holidays, birthdays and other special occasions. This is important because some people have had to go in debt just to cover holiday costs. And if you have upcoming events to spend for in the next couple of months, it’s important that they’re included in the budgeting, too.
Add up all of your income
Because budgeting is all about making sure that one’s income can cover all expenditures while leaving some room for savings, it’s imperative for you to keep track of the money that’s coming in.
Add up all of your income – your regular monthly salary, extra income from side hustles, passive income from a business if you have one, income from investments, and so on.
Set financial goals
People create a budget because they want to achieve certain financial goals. If, for instance, you decided you need a budget because you want to start building your savings, this step is now the part where you need to be specific about your goal.
Determine how much savings you want to reach by the end of a certain period. This way, you know who much money to set aside from your income to accomplish your goal. If you need to pay off debt, determine how much room you should allow in your budget for debt payments.
Having financial goals is crucial when creating a budget. Otherwise, you’re only shifting and adjusting your spending without achieving anything.
Getting started with the entire budgeting journey may seem a bit complicated, especially when you have never done it. But with these helpful budgeting tips, you can now create a budget you can actually stick to.
And if you’re ready to build your savings and achieve better financial health, Calcite Credit Union is a great place to start. Please visit or give us a call for more information.