It’s cliché but true: money does make the world go round. To attain the financial security needed to live a comfortable life, it’s crucial to manage your funds properly. Regardless of how much income you earn on a monthly basis, budgeting is a necessary practice that can help you reach your financial goals. Whether you’re planning to go on a week-long beach vacation or to buy the house of your dreams, you need to budget your finances well so that you can comfortably afford the expense without sapping all your resources.
Some people might think that budgeting is a tedious task that prevents them from enjoying their finances, but it actually accomplishes the opposite. A budget plan presents a clearer picture of your monthly income and expenses, giving you more control over how you spend. Once you have a better understanding of all your needs, you can save and allocate money to better support them. You might even be surprised to find some extra funds after you’ve set aside what you need for your necessities.
Additionally, rather than spending your cash and saving what’s left, why not save first? It’s much simpler than it seems, especially with a savings account. It safely stores your savings while helping you grow them by earning interest. Thanks to technology, it’s now easy to start a savings account through online bank account opening. With an online bank account, you can easily track and manage your funds through your own mobile phone, wherever you are.
If you’d like to start saving and spending effectively, below are six budgeting tips to keep track of your money.
Stay Motivated through Your Goals
One of the main purposes of budgeting is to reach your financial goals. Before you start your budget plan, ask yourself why you’re saving. Planning for short-term and long-term goals is a great way of motivating you while you budget. For example, you could look forward to paying for your graduate studies or replacing an old home appliance.
Your goals don’t have to be grand, but they should be specific and attainable. For example, instead of saying “I want to save up for a new refrigerator,” try rephrasing it as “I want to save Php 28,900 for a two-door refrigerator by December this year.” This way, your goals seem less daunting and more tangible as you construct a budget plan that best accommodates them.
Create a Comprehensive and Realistic Budget Plan
When creating your budget plan, make sure that it covers all your incomes and expenses, even the ones that aren’t fixed. A realistic budget plan doesn’t mean that you have to take away all the fun from your spending. However, you do need to consider your current income sources and lifestyle. For example, if you’re a freelancer who doesn’t earn a consistent income, your budget will differ from the budget of someone with a full-time job. You may have to place an even higher priority on necessities before other things like leisure. Fortunately, it’s quite easy to create a tailored budget plan with a few simple steps.
- List Down Your Monthly Incomes
The first step to creating your budget plan is to list down all your monthly incomes. It’s quite important to keep track of this because it could vary from month to month, especially if you have additional income sources like a small business and freelance work. Be sure to take taxes into consideration, especially if they’re not automatically deducted from your paycheck. Once you’ve listed down your month’s earnings, be sure to calculate their total so you can proceed to the next step.
- Record All Your Monthly Expenses
It’s best to keep all your financial statements organized and in one place before you start recording your monthly expenses. Statements like credit card bills, utility bills, and receipts from the month’s purchases are essential references. Instead of giving a rough estimate of how much you spent for each need, you can refer to your statements for updated and accurate amounts.
Do record both fixed and variable expenses while calculating your total expenditures. Something is considered a fixed expense if its cost is constant, such as your rent. Variable expenses include sporadic costs that change throughout the months, such as your gasoline fees or groceries. Recording all types of expenses will help keep your budget plan realistic and true to your actual needs.
It also helps to group every type of expense into different categories for easier reference. For example, electricity and water expenses can be placed under the utilities category, while grocery and dining expenses can fall under the food category.
Once you’ve finished recording all your expenses, you can add them up to get a good estimate of what your total expenditures for the month will look like.
- Compare Your Total Expenses with Your Total Income
If your total income is higher than your expenses, that’s great news! It means that you have more freedom to decide what to do with your finances. If you subtract your total expenses from your total income, you’ll find that you still have some money to spare. You can use this money to support your long-term financial goals, like building your retirement fund or paying off your mortgage.
However, if your total expenditure for the month is larger than your total income, don’t fret. This just means that you have to adjust your spending habits and reduce certain expenses. With this knowledge, you can create a budget plan that can fully support your basic needs, even when you don’t have a lot in the bank.
Lessen Your Non-essential Expenses
If you’re spending a little more than what you’re earning, it may be time to cut back on non-essential expenses. This doesn’t mean that you have to stop spending on things that bring you enjoyment, but it might help to lessen the amount you spend on them.
For example, it helps to avoid recurring charges from online subscriptions that you no longer use. If you haven’t been using a particular streaming service, it’s best to unsubscribe from your monthly payments. This is very important if you’re using a credit card, as most subscription services will automatically deduct money from it, leaving you with more credit card bills to pay for.
Entertainment and dining expenses can also be adjusted if you’re fond of frequently eating out or watching movies. Rather than dining out five times a week, why not limit it to twice a week? Instead, you can buy ingredients from the grocery and cook homemade meals, which saves you more money in the long run.
It may be difficult not to purchase some trendy clothes after a trip to the mall, but do try to avoid impulse shopping if you’re on a budget. Instead of immediately purchasing new clothes, take a few days to reflect on your current budget and wardrobe. After taking stock of your closet, you might find that you have plenty of perfectly usable and stylish clothes to wear. It’s not bad to treat yourself every once in a while, but do give yourself some time to think about whether you really need a certain item.
Find the Right Budgeting Method for You
There are plenty of methods you can use to budget your money. What’s most important is finding one that works best for you and your lifestyle. Certain methods might work for others, but they may not work for you, so it’s always worth experimenting with different budgeting techniques.
One popular technique is the 50/30/20 method. This technique is great for those who prefer looking at the bigger picture when they save. It’s meant to streamline your budgeting process by dividing your expenses into three simple categories: needs, wants, and savings. Using this method, fifty percent of your net income goes to your needs, thirty percent to your wants, and twenty percent to your savings or debt payments.
However, you still need to categorize your expenses and differentiate the “needs” from the “wants.” When using the 50/30/20 method, it’s best not to lump all your expenses into a broad category. For example, if you’re going grocery shopping, you may need a pack of toilet paper but you don’t really need a box of chocolates. Instead, your box of chocolates will be covered by your “wants” savings rather than your “needs”.
Set Aside Money for Unexpected Expenses
Life can be quite unpredictable, which is why it’s important to be prepared for anything. Besides saving up for your necessities and financial goals, it might help to set aside some money for an emergency fund. For instance, you might find yourself paying for an unexpected medical bill or emergency car repairs. If you resigned from your job, you may need some extra funds to help you stay afloat while you go job searching. Having a dependable emergency fund is a good way of supporting yourself without affecting your other financial plans. With an emergency fund, you can withdraw money when you need it without making a large dent in your savings.
Always Keep Your Budget Plan Updated
You and your finances can experience many changes in the span of a few months. Market prices may rise, your priorities may change, and you might be taking care of a growing family. This is why it’s best to regularly review and revise your budget plan accordingly.
It’s recommended that you update your budget plan on a monthly basis, so you can ensure that it fits your current circumstances. You might have earned a bit more this month than you did in the previous one, or you might want to adjust some of your financial goals. For those with partners, this is also the perfect time to touch base with them and plan your finances together.
Though keeping track of your money seems like a daunting task, with some practice, you’ll soon be able to effectively manage your finances. Regardless of your age, income, and lifestyle, budgeting is an essential part of your financial security. A great budget plan will support your needs while still giving you the freedom to enjoy your hard-earned income. With proper budgeting, you can live the comfortable life you deserve for many years to come.