Are you finding it difficult to make ends meet? Do you feel like you’re always playing catch-up when it comes to your finances? If so, don’t worry – you’re not alone. A lot of people have a hard time budgeting their money. But that doesn’t mean you can’t learn how to do it effectively. In fact, with just a few simple steps, you can start seeing real results in no time at all! So what are you waiting for? Check out these tips for budgeting your money and see how easy it can be!
- What is a budget?
- Steps to follow when making a budget
- Calculate how much income you earn.
- Gather information on expenses.
- Separate expenses into fixed and variable expenses.
- Add up your monthly expenses and income.
- Adjust your expenses.
- How to use your budget
- More budgeting tips
- How to budget when you are on a low income
What is a budget?
A budget is a plan that outlines how you intend to use every coin that you earn. It enables you to track your expenses and income for a specific period. While most people view budgeting as too much work, it’s the magic to financial freedom.
It shows you how much money you expect, and you can compare that with the expenses. This financial estimate is the best tool to help you achieve financial freedom. If you want to succeed in that yearly money-saving challenge such as the 52-weekly saving challenge, start by creating a budget.
Steps to follow when making a budget
To create an effective plan on how to use your money, you must get a grip on your expenses, what you can afford to spend, and your priorities. These are the steps to follow when budgeting.
Calculate how much income you earn.
Use the bank and mobile money statements to list all the income you earn. When calculating your income, work with net income. If you are self-employed, list the average income you expect from your business. Freelancers who have a regular income can use the lowest monthly income they have received in the past year. Income can include the following:
- Monthly pay
- Investment income
- Business income
- Child support or alimony
- Side hustle income
Gather information on expenses.
Before you create your money plan, you need to check your financial records and list all your expenses. Check your bank statements, mobile money, and credit card statements to see all the expenses you incur and list them in a template. The more information, the better.
Organize information based on the following categories and calculate the total of each category.
Separate expenses into fixed and variable expenses.
Fixed expenses can be defined as those expenses that are mandatory and whose price is constant. They include mortgage payments, rent, car payments, childcare, credit card debt, loan repayments and set internet fees.
Estimate the variable expenses you need to pay each month. Review the information you have gathered and come up with an estimate of the variable expenses.
Add up your monthly expenses and income.
Add up your income and expenses. If you have a higher income as compared to the expense, then you are lucky. This means you can start your saving journey right away. You can adopt the 50/30/20 budget framework. Where 50% of your salary goes to mandatory expenses, 30% to wants, and 20% to savings. Here is how the 50/30/20 applies to your income.
This gives you an idea on how much you should spend on wants, needs and savings. When calculating savings you less retirement benefits you have contributed. Retirement benefits are considered part of savings. If your expenses are higher than your income, you need to make adjustments on how you spend your money.
Adjust your expenses.
If your expenses are more than your income, then you need to adjust. Eliminate expenses that are not mandatory. Cancel subscriptions that you don’t need and ensure your expenses equal or are less than your income.
How to use your budget
After you set up your budget, keep track of it and monitor it every month. Make sure you record your expenses daily. Recording your expenses gives you a clearer picture of where the money goes.
Establish limits for each expense category and review them. Avoid going over the limit in any category. Make sure your expenses don’t surpass your income.
Review your budget often, especially if circumstances change. Make sure your plan is working for you.
More budgeting tips
Tweak your financial plan until it works for you. Here are more tips to help you budget effectively.
- If you work as a freelancer or on commission, save more during peak seasons to cover low seasons.
- Keep the cash you intend to spend each week in a separate account. If you are employed and receive your pay once a month, keep the cash for each week in a separate account.
- Avoid missing your credit card payment, as that will result in a penalty.
- Avoid overspending on certain categories by paying cash for the expenses.
- Improve your financial knowledge and make your money work for you.
- Look out for money-saving accounts that earn you an interest.
- Consider saving for retirement once you have regularized your spending.
- Create an emergency fund.
- Use apps to help ease the budgeting process
How to budget when you are on a low income
Budgeting when you are already stretched thin may feel like a tall order. However , its possible. Start by reviewing your expenses and look for small ways to shrink your spending. You will need to make tough choices that will help begin your saving journey.
To get you started, here are some examples of how you can start you savings journey when on a low income.
- Skip that meal at the restaurant completely.
- Cancel subscription’s you don’t need .
The journey to financial freedom begins when you start making sound financial decision.
- How to travel internationally on a budget: 15 Best tips and tricks
- How to Choose a Business Credit Card
- How to Set Financial Goals You Can Achieve
- How To Calculate Your Net Worth?
- How to Buy Shares