When it comes to financial advice, having a personalised budget is a roadmap to make your hard-earned money work for you. That said, a budget is not just for people with low income who tend to be always in debt, it is equally important for the wealthy people as well. If you are a complete novice and don’t know where to start, as it can be a minefield, the tips given in this Budgeting 101 blog post and video below will walk you through the entire process in a breeze. Not only will you avoid the common budgeting mistakes, but you will be able to keep aside a sum of money after a couple of months and actually learn to live on it.
Why buy things you can’t afford with money you don’t have to impress people you don’t like!
DO YOU NEED A BUDGET?
Surveys have shown that not many households have a strict budget and members generally end up spending more money than they earn. If you do not know how much you can afford and are borrowing cash to fill the gap between income and expenditure, then a budget is a must for you. If you choose to live paycheck to paycheck, then ultimately your buying spree will snowball into an unmanageable amount in no time at all, even though you may think your standard of living is fine. This is why budgeting is a great way to save more money, get out of debt and stay on track for long term financial goals or saving pots for special moments in life.
DIVE DEEP INTO YOUR STATEMENTS.
Keep a close tab on every penny which comes out of your bank account every single month using a budgeting method. You can study your credit card and bank statement to track your receipts in case you have forgotten the reason for a particular transaction. This can be a powerful process when you can see in black and white just how much money you spent on Amazon or on your favourite coffee shop! To make it easy to view you can store the information in an Excel spreadsheet form so that you don’t have to download any special apps or new programs for the information. Be accurate and honest in your assessment as otherwise you will end up lying only to yourself. Once you know what you have in your account at the end of each month, you will then know what to expect in case of any eventuality.
BUDGETING 101 – BASICS OF BUDGETING:
When you are new to budgeting and saving, it is advisable to start small but not to avoid spending altogether. It’s not about not spending money, but not wasting money! By factoring irregular expenses and saving for a nice holiday for example, rather than purchasing things you do not need the end goal is so much more achievable.
Your grocery bills, taxes and mortgage are unavoidable, but spending on an expensive TV or getting your hair done regularly one can compromise on. So, how about going for a cheaper TV bundle subscription, a second hand car or opt to go on a local holiday and use the money saved for your benefit.
Buying something to impress others and falling into debt is a common mindset seen with most people. This is wrong and should be avoided at all costs. Make a list of your priorities and grade them from 1 to 10. Remember this list should only contain things which will enrich your life. These could include gym membership, eating out, gifts for the family or sacrificing on clothes etc.
ASK THESE QUESTIONS;
A proper way to introduce yourself to budgeting is by asking yourself these four simple questions when you buy something:
Do you need it? Can you borrow it or make do without?
Will it bring value to your life?
How much does it cost Vs time spent working to pay for it.
Can you get it cheaper elsewhere?
If you can answer these questions satisfactorily, then go ahead and purchase it – once you’ve sat on the purchase decision for a week or month if you can manage!
BUDGETING FOR FINANCIAL SECURITY.
Setting short and long term goals towards financial security is an extremely important step every individual should take. Unless you don’t work on a tactical implementation of a business plan, you are more likely than not to end up short when you require money for unexpected bills, not to mention retirement. This would result in falling into a vicious debt trap from where it will be impossible for you to come out from to handle the more important risks of life. Even if you have never set goals before, Budgeting 101 can ensure that if you formulate then, you will always remain on a firm footing.
Budgeting 101: Key takeaways for financial planning.
- Starting a financial plan for retirement by setting short, intermediate and long term goals. Short term goals can give you the confidence boost to strive for larger goals, over a period of time. You first need to establish a budget to create an emergency fund. This would require to save three months of expenses to cover your basic needs, and even more if you have a family.
- A budget allows you to control your money and not let your money control you. It saves you the trouble of suddenly requiring funds in case you did not plan initially about them.
- Budgeting makes it easier to make ends meet as you avoid unnecessary spending on items that do not contribute to your prime needs in life.
- With budgeting you are able to keep a track of your money and how fast it is going out. You then know what you can afford and how far you are to reaching your financial goals.
Saving money to get ahead is hard but keep in mind that you are not alone. We have a very encouraging Facebook group that you can join for free full of likeminded people all doing the same as you; whether it be getting out of debt, saving for something special or just wanting to be more mindful with spending.
Creating a spending plan is the primary step towards financial success as it allows you to control your day to day expenses so that you can save for the things you really want to do in the future. Even if you start by saving the loose change in your pocket, the important thing is that you have made that start. Additionally, to help you, there are many resources and online tools to assist you in your endeavor towards financial freedom.
I hope this budgeting 101 guide series of blog posts will help you achieve your goals in 2021.
