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Budgeting

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Budgeting allows you to reach your financial goals. It gives you control over your spending and saving. Since it is much harder to control income, budgeting allows you to take charge of your spending.

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Budgeting also helps to save money. When you keep track of how much money you can spend, you will have a better understanding of where you stand financially, what you can and cannot afford, and in what direction you should go to achieve your financial goals.

Savings
Budgeting

Make a list of all your expenses

The first step in budgeting is to make a list of all your expenses. A financial spreadsheet like Excel is the best tool for the task. You can make a list with a pen and paper, however, software that has built-in math functions will serve the goal very well.

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Download “Budgeting Spreadsheet”

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Once you have the list of all your expenses, separate them into categories.

Put your expenses into categories

Put all your fixed and variable expenses in different categories. Fixed expenses are constant: the amount of money you pay each month is the same month after month. The most common category with fixed expenses is the housing category. This category usually contains rent or mortgage payments, utilities such as electricity, water, gas, internet, telephone, HOA dues, etc.

Variable expenses are those that may or may not occur. Use variable categories to project your budgeting.

Continue building categories until all your expenses -fixed and variable- are in their respective categories.

Project your spending

Once you built your categories, make three columns: projected cost, actual cost, and the difference between the projected cost and the actual cost. This simple math gives you a visualized perspective of the money that you have projected to spend and the money you actually spent.

Analyze your expenses

Now, you should have a full picture of the incoming and outgoing flow of your money. At the beginning of your budgeting journey, you may even want to keep records of all your receipts or simply make a note of each spending you made. You fill in the gas tank, keep the receipt, you went grocery shopping, keep the receipt. Do you have cash on hand? Keep the records of where your cash went. At the end of the month transfer your notes into your excel spreadsheet.

You will be surprised to learn that 20 percent or even more of your money was unaccountable before you started your budgeting journey.

Keep records for unaccountable spending

For an experiment or a self-challenge, try to keep all the records for all small cash expenditures you make during a certain amount of time.

Two dollars for a cup of coffee on the way to work, three dollars for a piece of cake going with a coffee. The beer after work with friends, the magazine you bought because you want to know the latest gossip.

Your list of unnecessary purchases may be different, but you got the idea.

Try the challenge of keeping the records of every penny you spent for three to four-month. Not only will you have a better understanding of your spending behavior, but you will also develop the habit of keeping the track of your incoming and outgoing flows.

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Simple and Compound Interest

10 Tips on planning spending and saving

You know where your money is going and now is time to take action towards your goals. Here are a few tips that help to stay on top of your game:

Download “Budgeting Spreadsheet”

Budgeting-sheet.xlsx – Downloaded 15 times – 87.73 KB
  1. Be consistent. This is first and most important requirement in achiving your goals. If you follow your plan for the first month but off next two months, the budgeting plan is useless.
  2. Keep records. Be diligent in keeping the records. Even if you spent $1, put it in your records.
  3. Eliminate impulse purchases. This is one of the most difficult requirements you have to follow. To battle the impulse buying, try leaving the house knowning how much money you allow yourself to spend on clothing, books, or whatever else triggers your impulses to buy. If you have budgeted $50 on some buys in your categories, stay within those $50. Do not spend more than you budgeted. Otherwise, your plan will not work.
  4. Leave your ATM card at home. Take out the cash you need for a week and use it for your expenses you budgeted. At the beginning, you may run out of cash. It is okay, but try to spend less next week. If you end the week with a surplus, deposit it back to your bank account.
  5. Leave your credit cards at home. Use credit cards for emergencies only. Easy said than done, but this one is important to follow. Otherwise, you find yourself buried under hafty interests charged for the money you used, which defeats the purpose of budgeting.
  6. Plan for large purchases ahead of time. If you need to make a large purchase, plan ahead of time and put it in your budgeting plan. For example, let’s say you want to purchase a matress for $1,000. Refer to your budgeting plan and see how much money you can allocate towards your big purchase. Let’s say you can allocate $100 monthly. Take these 100 dollars each month and set aside for the next 10 months. By the time you have saved $1,000, the matress might be on sale for $500.
  7. Be disciplined. You will have a ton of temptations to go over or off your budgeting plan. Your friends may invite you to a movie you have not budgeted for, or going out for drinks and pizza but you have already used your entertainment budget for this week or month. You can find an alternative by inviting your friends to your house instead to watch a movie. Being disciplined does not intend to deprive you on social engagments. Find alternatives and stay within your financial plans.
  8. Be flexible. If you need to spend more from one of your categories, then make sure to adjust another category that may not be important this week or month.
  9. Give something up. This tip is similar to a previouse one. Instead of adjusting one category in favor of another category take that category out of your budgeting plan for this month. Do not eliminate an expense from a fixed category, but find something on your budgeting plan that can wait until next month.
  10. Maintain your savings. Recommended by all financial gurus out there is to never cut back on your savings budget. Maintain your savings no matter what.

Stick with your budgeting plan for a few months. If you made it, pat yourself on the back for a job well done, if not, start all over again until you make it. Budgeting can be fun.

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