Creating a budget for your household and personal expenses is a great way to manage your money. It will help you keep track of your spending and allow you to identify areas where you can cut back, and maybe even increase your savings. Read on to learn why a budget is important, how to create one and, most importantly, how to stick to it!
The many benefits of having a budget
There is really no downside to having a budget. A budget will help you balance your income with expenses, savings and fun stuff like vacations and that big-screen TV you’ve been eyeing, while also helping you reach your financial goals. How do you know if you need a budget? Do any of these sound like you?
- You have trouble keeping track of where you are spending your money
- You aren’t saving as much as you would like
- You have trouble getting out from under debt
What to consider when creating your budget
Planning ahead will help you create a budget that is more tailored to your needs and goals.
1. Identify how much is coming in…and how much is going out
Take a month or two to really track your spending. Start with how much money you make and then record all of your expenses. Be sure to include fixed expenses like rent or car payments, and casual spending like a new pair of shoes or dinner out with friends. By recording all your spending, you’ll be able to easily identify impulse purchases that could have been avoided or items that you really didn’t need to buy. These unnecessary purchases represent potential savings in the future.
2. Think about your financial goals
You probably have a lot of financial goals, from taking a much-needed vacation to buying a home. Before starting your budget, it helps to identify your short-term and long-term goals. Once identified, you can make saving for these goals part of your budget.
3. Separate wants and needs
It’s easy to think that everything we want is a need, but it simply isn’t. One way to separate wants and needs is to think about what you spend money on that everyone spends money on (this is probably a need) vs what you spend money on that is particular to you (this is probably a want). For example, a need would be rent, food and medication. These are not optional in your life, and are expenses that most people have. A want would be things like a gym membership or a dinner out a few times a week. Sure, they are nice to have, but you don’t need them to survive.
Once you’ve done your pre-planning, it’s time to create that budget.
How to make a budget
By far the easiest way to create a budget and make sure that you aren’t forgetting anything important is to use a budget planner. There are many online tools that you can access for free that will help you create a budget based on your personal situation and goals. With an online budget tool, you can create, save and analyze your budget over time so you can modify it as your situation evolves. Online budget tools will also provide tips and guidance for creating and managing your budget.
According to Forbes Magazine, these are the best budgeting apps:[1]
- YNAB (You Need A Budget): Best Budgeting App For Achieving Financial Goals
- Goodbudget: Best Budget App For Budgeting Using Envelopes
- PocketGuard: Best Budgeting App For Tracking Spending
Tips to help you stick to your budget
Sticking to your budget is easier when you understand that a budget is not a fixed document. You can modify it whenever your situation changes, such as getting a raise or an inheritance. You can also modify your goals. For example, if you decide that for now, you’d rather rent a local cottage for a few weeks with friends for your annual vacation than go on that trip to Australia.
In addition, you could:
- Split big goals into smaller ones when possible
- Identify any areas where you consistently over-spend and adjust your budget to reflect this
- Give yourself permission to “sleep on” large purchases that are not in your budget – this cooling off period might just take away the impulse to buy
- Do a weekly meal plan to ensure that you only buy the groceries that you actually need (check out Making the most of your grocery budget for more grocery saving tips!)
- Budget for small treats or rewards each month when you meet your budget goals
Remember, having a properly planned out budget can not only help you meet your financial goals, but even small changes to your spending habits can have a major impact on your ability to save for the future.
Disclaimer
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- Personal finance and saving